Taking On Elections: Here's What To Watch, Energy Investors

With this being an election year, investors should remember that conventional wisdom dictates Republican presidents are better for the energy sector than Democrats. It is also worth pointing out that conventional wisdom, though conventional, does not always prove accurate.

Take the case of the United States Oil Fund LP (ETF) USO and the Energy Select Sector SPDR (ETF) XLE, the largest equity-based exchange-traded fund tracking energy. Both ETFs spent time surging during the most recent Bush Administration and during the Obama Administration. And both ETFs also spent ample time plunging during the last two presidencies.

“Many have a perception that U.S. Republican Presidents are good for oil given President George W. Bush’s oil business success. Overall, oil performed well during President George W. Bush’s time in office with an annualized return of 4.5%. From his start in 2001 until oil’s peak in July 2008, the commodity returned 388% or 23% annualized.  However, he couldn’t stop the 71% drop that plagued his last six months of office,” said S&P Dow Jones Indices global head of commodities Jodie Gunzberg in a recent note.

During President George W. Bush's time in office, XLE returned nearly 72 percent at a compound annual growth rate of 7.1 percent. Since President Obama took office, the benchmark energy ETF is higher by 27 percent with a compound annual growth rate of 3.4 percent.

XLE's performance during the Obama Administration deals a blow to the notion that Democrats are “bad” for traditional energy stocks. As Gunzberg notes, oil did not join the S&P GSCI commodities benchmark until, so save for just one year of the Reagan Administration, there have been five presidents since oil joined the index and the commodity enjoyed its performance during the Clinton Administration.

“On average, oil under the Republican Presidents returned 2.1% versus 1.4% under the Democratic Presidents. The Democratic Presidents represented both the best and the worst oil performance with oil performance during Republican Presidencies falling in the middle,” adds Gunzberg.

An interesting takeaway from oil's performance under various presidents is the following. Conventional wisdom also dictates that rising oil prices benefit alternative energy stocks because as oil prices, demand for alternative forms of power increases.

In theory, that could imply that liberal investors wed to both their pocketbooks and liberal investing ideology, might just want a Republican in the White House. That could boost oil prices, renewing the alternative energy debate, in turn bolstering the fortunes of ETFs such as the Guggenheim Solar ETF TAN.

And before anyone assert that Democrats in the White House should be good for alternative energy stocks, remember this: TAN is down more than 72 percent since President Obama took office.