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Oil and gas industry rioted Monday, with industry’s popular benchmark Select energy sector fund (XLE) jumping almost 15%.
The catalyst was new Pfizer and BioNTech may have hit the jackpot with a Covid-19 vaccine – a development that has injected a strong dose of optimism into global financial markets.
The pharmaceutical giants announced that they had developed BNT162, an mRNA vaccine that was over 90% effective in preventing Covid-19 infection in nearly 44,000 test subjects.
Now ETFs are reaping the rewards of optimism with significant new entries.
DataTrek Research co-founder Nick Colas told CNBC “ETF Edge” that energy and banking ETFs could post record inflows in December, as mutual funds divest from other less advantaged sectors.
For example, the S&P Oil and Gas Exploration and Production ETF (XOP) gained 16.2% since Monday, up from 0.35% Consumer Discretionary Sector Selection Fund (XLY).
The ETF space had a record year, with entries staying on track to break the previous record of $ 476 billion set three years ago.
Source: CNN Money
Here are some leading oil ETFs to play this trend:
SPDR Energy Select Sector ETF # 1 (XLE)
AUM: $ 10.17 billion
Spending rate: 0.13%
Cumulative returns: -43.2% With over $ 10 billion in assets under management, ETF Energy Select Sector SPDR (NYSEARCA: XLE) is the largest dedicated energy fund. Not surprisingly, it’s also the most liquid and has a low expense ratio of just 0.13%, making it one of the cheapest oil ETFs to own.
Related: Will Biden Be As Bad For Oil As Critics Suggest?
XLE is designed to track the prices and returns of companies in the Energy Select sector index. The index is therefore able to offer investors broad exposure to companies in the oil, gas and energy equipment industries. One of its big shortcomings, however, is that XLE only has 28 stocks in its portfolio, with Chevron Corp. (NYSE: CVX) and ExxonMobil (NYSE: XOM) overrepresented with weights of 23.76% and 22.76%, respectively.
As of this writing, XLE is trading at $ 34.13 per unit.
# 2 Vanguard Energy ETF (VDE)
AUM: $ 1.91 billion
Expense ratio: 0.10%
Cumulative returns: -43.6%
Vanguard funds are popular for their cheapness and Vanguard Energy ETF (NYSEARCA: VDE) stuck to this philosophy with an expense ratio of just 0.10%. It is also better diversified than XLE with 118 stocks in its portfolio, but with fewer assets under management. However, Chevron and Exxon are still over-represented, with weights of 20.93% and 21.93%, respectively.
VDE monitors the performance of MSCI US Investable Market (IMI) Index / Energy 25/50, an index composed of stocks of large and mid-capitalization US energy companies. VDE is currently trading at $ 45.97 per unit.
# 3 SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
AUM: $ 1.91 billion
Expense ratio: 0.35%
Cumulative returns: -48.69%
SPDR S&P Oil and Gas Exploration and Production ETF (XOP) is a great ETF for investors who don’t just settle for a vanilla fund that targets obvious energy candidates. ETF invests in 44 energy exploration and production companies and is quite well diversified: its main stake EQT Corp. (NYSE: EQT) weighs just 4.23%.
Having said that, diversification is not necessarily what it is meant to be. XOP’s high exposure to small energy companies can lead to extremely high volatility when oil markets become volatile. One unit of XOP is currently changing hands at $ 48.64.
# 4 ETF VanEck Vectors Oil Services (OIH)
AUM: $ 385.72 M
Expense ratio: 0.35%
Cumulative returns: -54.9%
VanEck Vectors Oil Services FNB (NYSEARCA: OIH) is an energy fund that takes a different approach to the oil patch by investing in stocks of oilfield service companies such as Schlumberger (NYSE: SLB), Halliburton Co. (NYSE: HAL) and Baker hughes (NYSE: BKR) instead of integrated energy companies like Chevron and Exxon.
OIH has a total of 26 shares of oil service companies and generally enjoys high liquidity. OIH is trading at $ 119.49 per pop.
# 5 IShares ETF MSCI Global Energy Producers (FILL)
AUM: $ 28.68 M
Expense ratio: 0.39%
Cumulative returns: -36.9%
the IShares MSCI Global Energy Producers ETF (COMPLETE) reflects the reality that the energy universe extends far beyond the borders of the United States. FILL’s biggest headlines are – no surprise here – Exxon and Chevron, but also includes a good breakdown of major international E&P players such as Total (NYSE: TOT), BP Plc. (NYSE: BP), Royal Dutch Shell (NYSE: RDS.A), and Lukoil (MCX: LKOH). FILL is very diverse, with a total of 197 stocks in its portfolio.
A major downside, however, is that FILL is a small fund with less than $ 30 million in assets under management and is also lightly traded. The ETF is trading at $ 11.95 / unit.
By Alex Kimani for OilUSD
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