DoubeLine Capital CEO Jeff Gundlach may be better known for his fixed-income plays, but he is currently looking at commodities as a great market play, singling out an oil and gas exploration and production exchange traded fund.
At the Sohn Investment Conference, Gundlach argued that the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) is an underappreciated opportunity in the energy space, contending that energy stocks have not fully priced in the crude-oil rally, reports Eric Rosenbaum for CNBC.
“It’s lagged in a way that’s kind of bizarre this year,” Gundlach told CNBC. “It’s not a very great performing sector, and yet oil has gone up towards $70 a barrel.”
XOP is up 5.4% year-to-date and 12.4% over the past year. The S&P 500 gained 0.5% year-to-date and is up 16.0% over the past year. Meanwhile, West Texas Crude oil increased 25% in the past year.
“If you look historically at the energy sector versus the S&P 500, not surprisingly it’s correlated with movements in oil. That hasn’t happened this time, and I think there’s a catch-up there. The charts look good on XOP, the exploration and production part of the sector,” Gundlach added.
Related: Biggest Energy ETF Jumps 4% Over Past Week
Potential investors interested in the oil and gas exploration and production play should also keep in mind that XOP is not like other similar plays out there as the State Street ETF is equally weighted, so the portfolio leans toward more smaller-sized companies.
“This is why what’s inside an ETF and not just its name and expense ratio are important,” Todd Rosenbluth, director of ETF and mutual fund research at CFRA, told CNBC. “XOP is equally weighted and has more small and mid-cap exposure than IEO so it will be down more in down years for the energy sector.”
XOP’s tilt toward smaller companies may also help the fund outperform if oil prices continue to rise as they are more sensitive to short-term changes.
For more information on the energy sector, visit our energy category.