During “ETF Edge” on CNBC’s Halftime Report on Monday, host Bob Pisani got into the major attack on Saudi Arabia’s oil supply, which took out half of the Kingdom’s oil output and causing the biggest spike in Brent Crude prices in history. Pisani then turned to ETF Trends CEO, Tom Lydon, to get his perspective on the matter when it comes to oil ETFs.
When asked if there was ETF-related interest over the weekend when considering what took place, Lydon explained how investors did their homework to find spikes not only in the long term buy-and-hold ETFs but leveraged and inverse ETFs.
“There was an equal balance between investors thinking there might be another long-term play here if we have more tension overseas,” Lydon states. “But also, if this thing is just some one-and-done opportunity, there’s an opportunity here to maybe short oil, if it reverts back.”
A Hollowed-Out Sector
Moving to discuss how energy has been seen as a hollowed-out sector, 5% of the S&P (formerly 10%), CFRA’s Todd Rosenbluth delves into what’s going on inside the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), in particular.
Rosenbluth explains how XOP had exposure to the smaller-cap companies, with some large-cap exposure. These are companies with high debt leverage and weak cash flows. XOP has a big difference from iShares US Oil & Gas Exploration & Production Index ETF (IEO), which is more market-cap weighted.
When asked by Pisani if there’s a reason to differentiate these various ETFs at this point, Lydon explains how, “They’re undervalued, for sure, and prices, in general, are low. We’ve seen what can happen with a big catastrophe that occurred. So coming down to it, we’re long-term investors, for sure, we’re encouraging people to be long-term, but there’s a trade-on right now, and people are surely taking advantage of it.”
As far as possible heightened oil profits, Rosenbluth states, “You certainly want to make sure that you’re diversified.” The large-cap play in this should be more diversified, given the exposure.
Watch Tom Lydon Discuss Oil ETFs on CNBC:
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