The energy sector was off to a weak start this year on falling oil prices and concerns on the global supply glut for crude. Trading in oil has been rough as of late due to a rising dollar and growing production in Libya, the North Sea, and Iran (read: Play the U.S. Oil Boom with These Energy ETFs).
Libya has started ramping up its production following the restart of the El Sharara field earlier this month. The country tripled its oil supply to 650,000 barrels a day for the three weeks ending January 13. With the start of the Buzzard oil field, the North Sea output is also expected to rise.
Further, Iran and the major world powers finally entered into an interim deal in which the former would curb its nuclear activities in exchange for loosened international sanctions. The agreement– effective January 20 –will enable Iran to export more crude, something that could result in lower crude prices (read: Oil ETFs in Focus on Iran Deal).
Moreover, U.S. oil production is surging thanks to shale formations and newly tapped oil and gas fields in North Dakota and Texas. The rising global supply has taken a toll on oil prices and pushed many oil producing stocks down this year.
In such a backdrop, many energy ETFs have also seen choppy trading since the start of the year and this trend is likely to continue at least for the short term as global production continues to rise (see: all the energy ETFs here).
Vanguard Energy ETF (VDE)
This fund manages a $2.5 billion in asset base and provides exposure to a basket of 162 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product charges a low fee of 14 bps per year from investors and is tilted toward large cap stocks. Volume is moderate as it exchanges more than 100,000 shares a day.
Exxon Mobil (XOM) and Chevron (CVX) dominate the fund’s holdings at 23% and 12.5%, respectively, while other firms make up for less than 6.3% of assets. From a sector look, integrated oil & gas make up for the largest share at 40.8% of assets closely followed by production and exploration (26.40%), and equipment services (16.90%).
VDE has lost 2.45% year-to-date and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘Low’ risk outlook (read: Follow Warren Buffett in 2014 with These Sector ETFs).
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
This fund follows the S&P Oil & Gas Exploration & Production Select Industry Index, holding 81 stocks in its portfolio. It has amassed $617.7 million in its asset base and trades in heavy volume of more than 4.6 million shares per day. The ETF charges 35 bps in annual fees from investors.
The product provides equal weight exposure across a number of firms as none holds more than 1.6% of total assets. Further, it is widely diversified across various market caps – small caps (46%), large caps (30%) and mid caps (24%). However, about three-fourths of the portfolio goes to the exploration and production firms while refining and marketing, and integrated oil & gas take the remainder.
The ETF is down nearly 3.7% year-to-date and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘High’ risk outlook.
iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
This ETF tracks the Dow Jones U.S. Select Oil Exploration & Production Index with AUM of $421.5 million. The fund trades in good volume of nearly 117,000 shares per day and charges 45 bps in annual fees and expenses (read: A Comprehensive Guide to Oil & Gas ETFs).
In total, the product holds 75 securities, though it is guilty of concentration in its top 10 firms at 60% of assets. The top firm – ConocoPhillips (COP) – accounts for 13.25% share while other firms hold less than 7.3%. Here, exploration and production takes the top spot at 87.25% in terms of sectors, while integrated oil & gas takes the remainder.
The fund lost 2.4% so far this year and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘Medium’ risk outlook.
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