The energy sector and related exchange traded funds are on course for their biggest annual percentage gain on record after the segment took a beating during the onset of the COVID-19 pandemic and the world put greater attention on fighting against climate change.
The Energy Select Sector SPDR Fund (NYSEArca: XLE) has increased 53.9% in 2021.
The S&P 500 energy sector gained about 50% so far this year as the economy recovered and consumers returned to travel, beating its last record of around 25% in 2016, the Wall Street Journal reports.
Furthermore, U.S. crude and the global oil benchmark prices have also gained over 50% this year.
Despite the recent pullback in prices due to concerns over the latest COVID-19 variant, the energy sector has maintained most of its gains for the year, enjoying a stellar year after the U.S. eased COVID-19 restrictions and consumers returned to the roads.
While the coronavirus pandemic is far from over, analysts are optimistic about the sector from here on out, pointing out that with vaccination drives around the world and a growing expertise on managing the virus will help the world avoid more strict curbs.
Furthermore, low supply from U.S. shale oil producers and the Organization of the Petroleum Exporting Countries also helped support prices this year.
“Oil and natural gas and unfortunately even coal are going to be pretty critical elements for global economic growth into the future, as well, and investors are finally recognizing that,” Rob Thummel, senior portfolio manager at TortoiseEcofin, told the WSJ.
The momentum in energy stocks may run through 2022 as the global economy continues to expand.
“It’s going to be another year for potential for outperformance, driven by the return of cash to investors,” Thummel added.
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