Market Overview

These Energy ETFs Have More Gas in The Tank

These Energy ETFs Have More Gas in The Tank

Following a May-June decline that left many investors apprehensive about the sector's near-term prospects, energy equities have bounced back in a big way. That is good news for the broader market as well. The energy sector accounts for nearly 11.4 percent of the S&P 500's weight, indicating it would be hard for the broader market to rally without some help from oil and gas stocks.

Notoriously volatile, energy stocks and ETFs have put that volatility on full display in the past month, treating investors to an almost dizzying rally. In that time, the Energy Select Sector SPDR (NYSE: XLE) has jumped 8.2 percent, more than doubling the returns of the SPDR S&P 500 (NYSE: SPY).

Investors appear to be betting on more upside. Last week, the top ETF as ranked by inflows was XLE with $391 million, according to a Deutsche Bank note. The SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) was also found among the top 20 with inflows of $110 million. Energy investors might just be able to find additional upside with the following ETFs.

PowerShares Dynamic Energy Exploration & Production Portfolio (NYSE: PXE) In comparison to funds like XLE and XOP, the PowerShares Dynamic Energy Exploration & Production Portfolio leads a somewhat anonymous existence. Arguably, that should not be the case, as in the past month PXE has outperformed XLE, XOP and the Vanguard Energy ETF (NYSE: VDE) by decent margins.

There is a secret that explains PXE's recent bullishness. That is exposure to refiners. Those stocks have been on fire recently and with PXE being home to at least five stocks with downstream exposure, the fund has benefited.

iShares S&P Global Energy Index Fund (NYSE: IXC) The iShares S&P Global Energy Index Fund does allocate almost half its weight to U.S. companies and Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) do combine for 23.5 percent of the fund's weight, but IXC does have enough non-U.S. exposure to be considered a legitimate international ETF. Problem is global energy stocks have been lagging their U.S. counterparts. In the past month, IXC is up 7.3 percent, which is pretty good, but that run also puts IXC behind XLE.

In IXC's favor is an improving chart that indicates the ETF should find support just under $38 in the event of a pullback and that the fund could run back to the $41 area without much material resistance. IXC also yields more than SPY.

Market Vectors Unconventional Oil & Gas ETF (NYSE: FRAK) FRAK came to market in February. In that time, the ETF has been decent at attracting assets, though it still has not risen to the upper echelon of new ETFs in terms of size. That may start to change as FRAK's performance improves and it has been doing just that. FRAK is down almost 10 percent since its debut, but has surged 9.2 percent in the past month. A move above $23.25 could confirm a breakout for FRAK.

Market Vectors RVE Hard Assets Producers ETF (NYSE: HAP) The Market Vectors RVE Hard Assets Producers ETF is another example of an anonymous energy ETF, but that is not a commentary on the fund's ability to generate returns. A 5.4 percent gain in the past month attests to that fact and $138.3 million in AUM indicates at least a few investors are aware of this ETF.

There are a couple of rubs with HAP that may limit the fund's upside relative to the other ETFs on this list. First, non-U.S. stocks account for almost 57 percent of HAP's weight. Second, energy names are just 40.6 percent of the fund's overall weight. In an ETF with over 350 stocks, that makes a difference.

Yes, HAP gives investors exposure to companies such as Exxon Mobil and BP (NYSE: BP), but names like Potash (NYSE: POT) and Deere (NYSE: DE) are also prominent within this ETF.

For more on energy ETFs, click here.


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