Finding Value With Energy ETFs

With the current bull market getting older each day, some investors are apt to believe finding value is becoming an increasingly difficult task. While many sectors are not alarmingly stretched on valuation relative to long-term averages, some are and finding those that are attractively valued against long-term metrics is not easy.

The sectors frequently cited as credible value plays these days are energy and financial services, perhaps explaining why those two groups are often found among the largest sector weighs in exchange traded funds following the value factor.

There is some debate regarding the energy sector's efficacy as a value play. Naysayers would point to the sector's contracting earnings, which serve to lower valuation metrics, as the reason the group looks like a value bet. Of course, decreasing earnings are not attractive at all and that scenario could indicate more value trap than legitimate value.

Still, the Energy Select Sector SPDR XLE, the largest equity-based energy ETF by assets, is higher 16.9 percent year-to-date. That puts XLE slightly behind the Utilities Select Sector SPDR XLU for the title of 2016's best-performing sector SPDR ETF.

On a technical basis, there very could be value to be had with XLE and some of its holdings.

“The energy sector’s recent performance, combined with the fact that none of these stocks are trading above a longer-term moving average, indicates there may be some value to be extracted from the oil patch. This may be especially true for long-term investors who can stomach the volatility,” said State Street in a recent note

Indeed, data suggest the energy sector, the seventh-largest sector allocation in the S&P 500 at a weight of seven percent, is attractively valued. Perhaps more so than all but one sector.

“The energy sector remains the second most inexpensive segment among the ten major S&P 500 sectors, based on the relative valuation measure: the price-to-book (P/B) ratio. As shown in the chart below, the energy sector P/B ratio is currently 30% less than that of the S&P 500, and it is close to its 10-year low,” adds State Street.

With second-quarter earnings season winding down, some analysts are forecasting that the quarter will be the fifth consecutive of year-over-year earnings declines for the S&P 500, with energy being a big reason why. Strip out energy for the second quarter and S&P 500 earnings were probably flat.

Posted In: EarningsLong IdeasNewsSector ETFsCommoditiesIntraday UpdateMarketsTrading IdeasETFs

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.