The energy sector has had a 2021 to remember and the party may not be over yet as market analysts are forecasting that another strong year could be ahead.
While the index has faltered recently, the S&P GSCI Energy index is up almost 50% for the year. In an interview with CNBC, Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, is bullish on energy, while JP Morgan analysts are optimistic on names like Exxon Mobil and Phillips 66.
″We also recently added to Phillips, which is part of the JPMorgan upgrade, and I think that makes sense for a lot of reasons. The company is going through cost restructuring. They seem to be turning the corner on some of the execution problems they had. And we think that the oil boon is going to continue even though omicron has impacted the headlines,” Tengler said.
“For the U.S. to bring supply back up to levels that we saw pre-pandemic, it’s going to take to July of 2023. So I think there’s going to continue to be upward pressure on the price of oil, and I think there are still ways for you to make money in this sector,” she added.
2 Energy ETFs to Consider
To ride the momentum of strong oil prices, ETF investors may want to look at the Invesco DB Oil Fund (DBO). DBO provides an ideal opportunity to get exposure to the current upside in oil prices, and furthermore, investors do not hold direct exposure to the heavy price volatility of holding positions directly in the commodity itself.
Per the fund description, DBO seeks to track the DBIQ Optimum Yield Crude Oil Index Excess Return (DBIQ-OY CL ER), which is intended to reflect the changes in market value of crude oil. The single index commodity consists of Light, Sweet Crude Oil (WTI), and the fund invests in futures contracts in an attempt to track its corresponding index.
For something more broad-based, ETF investors may want to look at the Invesco DB Energy Fund (DBE). DBE seeks to track the DBIQ Optimum Yield Energy Index Excess Return, which is intended to reflect the changes in market value of the energy sector.
The index commodities consist of light, sweet crude oil (WTI), heating oil, Brent crude oil, RBOB gasoline, and natural gas. This adds an energy diversification component, giving investors upside potential and downside risk mitigation by not over-concentrating in one commodity.
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