The coronavirus pandemic triggered a global economic downturn, which in turn begot an oversupply of energy globally and a collapse in crude oil prices last year. However, 2021 brings renewed optimism for the oil industry. Brent crude oil spot prices averaged $55 per barrel in January, up from a $5/b average price in December. The average crude oil spot price was $60.46 per barrel for February.
The increase in average per barrel price of oil last month was largely driven by Saudi Arabia’s announcement on January 5 that it would cut one million barrels per day (b/d) of crude oil production in February and March, and an agreement by OPEC and OPEC+ members on reducing overall production levels. These moves will likely result in a double-digit increase in energy stock prices in the months to come.
In fact, because oil prices are expected to increase further, many previously uneconomical oil & gas projects may suddenly become attractive as more energy companies resume exploration in different regions. We believe resuscitated investor optimism on coronavirus vaccine distributions and a steady recovery in global oil demand should help energy stocks to soar this year.
Hence, ETFs such as Energy Select Sector SPDR Fund (XLE), SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and VanEck Vectors Oil Services ETF (OIH) are well positioned to deliver exceptional returns we believe.
Energy Select Sector SPDR Fund (XLE)
XLE offers exposure to U.S. energy companies , which include some of the largest oil producers in the world, as well as companies in the gas and consumable fuels and energy equipment and services industries. The fund has approximately $21.01 billion in assets under management (AUM). XLE’s major holdings include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) and ConocoPhillips (COP).
XLE has an expense ratio of 0.12%, which is lower than its category average of 0.48%. The ETF has a stable environmental, social and government outlook. It has a BBB MSCI Rating, which is based on a score of 5.42 out of 10. XLE has gained 17.6% over the past year and 51.9% over the past six months. The ETF pays $2.13 in dividends annually; its four-year average dividend yield is 5.2%.
XLE closed yesterday’s trading session at $52.95 and is currently trading just 0.2% below its 52-week high of $53.07. The ETF has advanced 24.2% over the last month and has seen net inflows of $1.11 billion during this period.
XLE’s POWR Ratings reflect this promising outlook. The ETF has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
XLE has an A grade for Trade and Buy & Hold. Of the 40 ETFs in the C-rated Energy Equities ETF group, XLE is ranked #1.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
XOP provides exposure to the oil and gas exploration and production sub-sector of the U.S. energy market. It allows investors to target the stocks of companies responsible for discovering and accessing new deposits of oil and gas. XOP is not only appealing from a cost perspective but is also unique in that it seeks to replicate an equal-weighted benchmark. It has approximately $3.37 billion in AUM. XOP’s major holdings include Marathon Oil Corporation (MRO), Diamondback Energy, Inc. (FANG) and Devon Energy Corporation (DVN).
The ETF has an MSCI ESG Rating of BB, reflecting its engagement in environmental, social and governance issues. XOP has an expense ratio of 0.35%, which is lower than the category average 0.48%. The ETF has gained 57.6% over the past year and 82% over the past six months. It pays $1.09 in dividends annually and its four-year average dividend yield is 4.4%.
XOP is currently trading at $90, which is just 0.4% lower than its 52-week high of $90.34. The fund has witnessed a net inflow of $201.39 million over the past month and is up 28.6% during the same period.
It is no surprise that XOP has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. It also has an A for Trade Grade and Buy & Hold Grade, and a B for Peer Grade. It is currently ranked #3 of 40 ETFs in the same group.
VanEck Vectors Oil Services ETF (OIH)
With approximately $1.18 billion in AUM, OIH is designed to closely track the largest 25 U.S.-listed, publicly traded oil service companies. Even though only a fraction of the fund is invested in overseas equities, its top-10 holdings represented a concentrated exposure to U.S. companies. OIH’s major holdings include Schlumberger NV (SLB), Halliburton Company (HAL) and Baker Hughes Company (BKR).
OIH has an MSCI ESG Fund Rating of BBB, which is based on a score of 5.17 out of 10. The fund has an expense ratio of 0.35%, compared to the category average 0.48%. It has gained 34.4% over the past year and 77.6% over the past six months. The ETF has distributed $1.89 as dividends annually, which translates to a 0.85% dividend yield. Its four-year average dividend yield is 39.7%.
OIH closed yesterday’s trading session at $222 and is trading just 0.2% below its 52-week high of $222.52. The ETF has advanced 25.6% over the last month and has seen net inflows of $254.02 million during this period.
The ETF has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. OIH has an A for Trade Grade, Buy & Hold Grade and Peer Grade. It is currently ranked #5 in the same ETFs group.
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XLE shares were trading at $53.02 per share on Monday morning, up $0.07 (+0.13%). Year-to-date, XLE has gained 39.89%, versus a 2.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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