Soaring energy demand and production cuts could push oil prices up in the upcoming months. This could be beneficial for the energy sector. Therefore, investors can check out ETFs Energy Select Sector SPDR ETF (XLE) and Fidelity MSCI Energy Index ETF (FENY) this week to diversify their portfolios.
Several macroeconomic headwinds hampered the performance of most of the sectors in the economy last year. However, the energy sector fared comparatively well and is poised to maintain momentum in the upcoming months.
The reopening of the Chinese economy and the resultant strong rebound in Chinese travel has stoked optimism about oil and gas demand. Research company Wood Mackenzie anticipates a return to normal mobility in China to be the “single biggest demand driver,” accounting for 1.0 million barrels per day (bpd) of the 2.6 million bpd increase this year.
Additionally, oil prices have soared since OPEC+ announced a production cut of 1.16 million bpd. This move came after Russia’s cuts of 500,000 bpd until the end of 2023. These cuts could push prices even higher. Moreover, OPEC’s surprise oil production cuts could lead to higher demand for U.S. oil in Europe and Asia and could encourage some other producers to boost output.
Against this backdrop, investors could capitalize on the current oil market dynamics and diversify their portfolio through quality energy ETFs. Therefore, fundamentally strong ETFs XLE and FENY might be wise choices for this week.
Energy Select Sector SPDR ETF (XLE)
XLE is a sectoral ETF launched by State Street Global Advisors, Inc. and is currently managed by SSGA Funds Management, Inc. The fund offers concentrated exposure to major U.S. energy businesses, including companies in the oil, gas, and consumable fuels and energy equipment and services industries.
The fund’s NAV was $86.55 as of April 12, 2023. XLE has an expense ratio of 0.10%, lower than the category average of 0.43%.
As of April 12, with $40.42 billion in AUM, XLE’s top holdings are Exxon Mobil Corporation (XOM) which has a 23.17% weighting in the fund, followed by Chevron Corporation (CVX) at 19.51%, and EOG Resources Inc. (EOG) at 4.64%. The fund has a total of 26 holdings, with its top 10 assets comprising 74.86% of its AUM.
The fund pays $3.32 annually as dividends. This translates to a 3.83% yield at the current price level. Its dividend payouts have grown 13% CAGR over the past three years and an 8.1% CAGR over the past five years. The fund has a four-year average yield of 5.58%.
XLE’s net inflow came in at $128.24 million over the past five days and $461.83 million over the past three months. XLE has gained 4.7% over the past month and 8% over the past six months to close the last trading session at $86.53. The fund has a beta of 1.14.
XLE’s strong fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has grade A for Trade, Buy & Hold, and Peer. XLE tops the list of 46 funds in the B-rated Energy Equities ETFs group. Click here to see XLE’s ratings.
Fidelity MSCI Energy Index ETF (FENY)
FENY tracks an index of U.S. energy stocks, including many of the world’s largest oil producers. It can be useful as a tactical overlay for those looking to shift exposure toward a sector that thrives when oil prices show strength. It uses a representative sampling indexing strategy to manage the funds.
The fund’s NAV was $23.42 as of April 12, 2023. FENY has an expense ratio of 0.08%, lower than the category average of 0.43%.
With $1.56 billion in AUM, FENY’s top holdings are XOM which has a 22.47% weighting in the fund, followed by CVX at 16.12%, and ConocoPhillips (COP) at 6.62%. The fund has a total of 124 holdings, with its top 10 assets comprising 67.78% of its AUM.
The fund pays $0.84 annually as dividends. This translates to a 3.57% yield at prevailing prices. Its dividend payouts have grown 7.5% CAGR over the past five years. The fund has a four-year average yield of 5.04%.
FENY’s net inflow came in at $27.80 thousand over the past five days. FENY has gained 4% over the past month and 6% over the past six months to close the last trading session at $23.41. The fund has a beta of 1.16.
FENY’s promising outlook is reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It also has an A grade for Trade and Peer and B for Buy & Hold. The ETF ranks #6 within the same group. View all FENY ratings here.
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XLE shares were unchanged in premarket trading Thursday. Year-to-date, XLE has declined -0.10%, versus a 7.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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