Money Keeps Pouring Into The Largest, Top-Heavy Energy ETF

We have seen some nibbling this week in Energy Equities via XLE (SPDR Energy Select Sector, Expense Ratio 0.15%), as the fund has found some support above its 50 day MA but it is still well off of its mid-December intraday high of $78.04 (more than 4% below these levels presently).

Including more than $315 million that has entered XLE this week via creation flows, the fund has seen about $378 million appear year-to-date. Crude Oil futures themselves are popping nicely in early trading today, up more than 2.7% which generally helps the Energy equity sector along and we note that Crude Oil prices also are off of their recent peak prices reached just at the beginning of this year.

XLE is by far the largest “Energy Equity” ETF in terms of asset size with $17.5 billion, making it about four times the size of the next biggest fund in the segment VDE (Vanguard Energy, Expense Ratio 0.12%, $4.3 billion in AUM). VDE has seen modest inflows year-to-date as well, with about $50 million being added via creation activity.

As we have mentioned in previous pieces, XLE has notable top end exposure to just two individual equity names, due to the limitations of the “market-capitalization” weighting scheme that the fund employs, which of course could be good or bad for investors depending on how these two stocks perform with #1 XOM coming in at 16.55% of the portfolio and followed by CVX at 14.56%. There are thirty seven names in the underlying portfolio in total and approximately 64.80% of the portfolio’s weightings are invested in the top ten names in the basket.

VDE has an even more noticeable “over-weight” to XOM, as the name comprises 21.61% of the portfolio as the underlying index’s largest holding, followed by a 13% allocation to #2 CVX. VDE does however have broader portfolio exposure than XLE in the sense that one hundred thirty-four individual equity names are in the underlying basket.

XOM is slated to report quarterly earnings on January 31 before the market open while CVX is expected to report their respective numbers on January 27 in the AM. Both of these events should be watched carefully in the context of the Energy Equity ETF sector here and we are also conscious of levered “Bull” and “Bear” products in this space which will likely see upticks in trading interest, such as ERX (Direxion Daily Energy Bull 3X, Expense Ratio 0.95%), ERY (Direxion Daily Energy Bear 3X, Expense Ratio 0.95%), DIG (ProShares Ultra Oil & Gas, Expense Ratio 0.95%) and DUG (ProShares UltraShort Oil & Gas, Expense Ratio 0.95%).

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The Energy Select Sector SPDR ETF (NYSE:XLE) was trading at $74.81 per share on Friday afternoon, up $0.55 (+0.74%). Year-to-date, XLE has declined -0.68%, versus a 1.54% rise in the benchmark S&P 500 index during the same period.

XLE currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 38 ETFs in the Energy Equities ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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