The Struggle is Real for Energy ETFs

With oil ranking as one of this year’s worst-performing commodities, it is not surprising that the energy sector is the worst-performing group in the S&P 500.

For example, the Energy Select Sector SPDR (NYSEArca:XLE), the largest exchange traded fund dedicated to energy equities, is down about 15% year-to-date and is closing in on a dubious losing streak.

Obviously, production is a key element in the decision-making process regarding energy investments. Currently, oil investors face conflicting reports regarding output. For example, Venezuela’s crude output is plunging to multi-year lows while Algeria is looking to boost production.

“As oil has dropped, the energy sector’s full-year profit expectations have declined as well. The 2017 annual earnings-per-share expectation has declined from about 340 percent at the beginning of the year to about 305 percent year-over-year growth, S&P Global portfolio manager Erin Gibbs pointed out,” reports CNBC.

Energy is the S&P 500’s seventh-largest sector allocation, a spot the group has occupied for some time. However, at 6%, energy is more than 50% the 9.2% allocated to consumer staples. Three sectors – healthcare, financial services and consumer discretionary – have more than double the weights in the S&P 500 than energy does while technology’s weight in the index is more than triple that of energy’s.