State-Run Energy Companies Are Sinking These ETFs
By no means has 2013 been a bad year for some of the largest energy sector ETFs.
The Energy Select Sector SPDR (NYSE: XLE) and the Vanguard Energy ETF (NYSE: VDE) are both up more than nine percent year-to-date and both are flirting with their highest levels since before the financial crisis when oil prices were $40 to $50 per barrel higher than today.
Those performances are solid when considering shares of Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies, are up an average of just 5.5 percent this year. Still, those numbers are fantastic when compared to some of the state-controlled oil giants that dominate an array of emerging markets ETFs.
Down 20.2 percent this year, Petrobras (NYSE: PBR) remains one of the more egregious offenders among state-run oil firms, but this nothing new for the Brazilian oil giant. More importantly, Petrobras is far from being the only state-controlled oil company that is wreaking havoc on multiple ETFs. Just look at the following group.
Global X China Energy ETF (NYSE: CHIE)
The primary drivers of performance in the Global X China Energy ETF are China's massive state-run oil companies. That list, in order of descending weight within CHIE, is Cnooc (NYSE: CEO), PetroChina (NYSE: PTR) and Sinopec (NYSE: SNP). That cadre of stocks is performing well Monday, but do not let one day of strong performance be deceiving.
The average loss among those three stocks in just the past month is north of 14 percent and Goldman Sachs recently pared its price targets on PetroChina and Sinopec, China's two largest oil companies. Those three stocks combine for about 28.6 percent of CHIE's weight, so it is not surprising that the small ETF is down 12 percent this year.
Global X FTSE Colombia 20 ETF (NYSE: GXG)
The Global X FTSE Colombia 20 ETF has not been immune to the savage repudiation faced by the major single-country Latin America ETFs this year. Eroding commodities demand has been a primary culprit behind the stunning drops in these ETFs in 2013, which includes a 15.1 percent tumble for GXG.
Quantifying GXG's woes is easy. The largest Colombia ETF currently features a 13.5 percent allocation to Ecopetrol (NYSE: EC), Colombia's state-controlled oil company. There was a time when Ecopetrol was the shining star among Latin American state-run oil companies. During that time, investors that opted for Petrobras over Ecopetrol wound up kicking themselves.
That time is not now because shares of Ecopetrol have plunged almost 32 percent this year, a decline that almost makes Petrobras look good by comparison.
EGShares Energy GEMS ETF (NYSE: OGEM)
As an ETF devoted to emerging markets energy stocks, the EGShares Energy GEMS ETF can be a great...when everything is perfect in the world. "Perfect" meaning investors are bidding up both emerging markets and energy fare.
Since this ETF tracks developing world energy stocks, it is inevitably heavy on government-run enterprises. Russia and China combine for 54 percent of the ETF's weight and nearly all of the ETF' top-10 holdings are state-controlled firms.
The woes of China's oil companies have already been detailed here, so look at a chart of a major Russia ETF for further details on why OGEM has struggled. Russia ETFs are energy sector-heavy. Combine that with sliding Chinese oil names and it is not surprising to learn OGEM is down 17.1 percent this year.
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