Tracking The Trade In Oil ETFs

At the Sohn Investment Conference last week, Jeff Gundlach, founder and CEO of DoubleLine Capital, said he is long the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP).

As Gundlach noted, XOP has “lagged in a way that's kind of bizarre this year."

“If you look historically at the energy sector versus the S&P 500, not surprisingly it's correlated with movements in oil," Gundlach said at the conference. "That hasn't happened this time, and I think there's a catch-up there."

Entering Wednesday XOP was up about 4 percent year-to-date, and as of this writing the fund was within $1 of its 2018 high from Jan. 24.

XOP was up 5.4 percent year-to-date while the rival iShares U.S. Oil & Gas Exploration & Production ETF (CBOE: IEO) was higher nearly 10 percent.

The United States Oil Fund (NYSE:USO) is up over 13 percent year-to-date, making XOP's laggard status all the more obvious when considering exploration and production stocks are often highly sensitive to fluctuations in oil prices.

Short-term traders have also been following that trade with the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSE:GUSH). GUSH aims to deliver triple the daily returns of the S&P Oil & Gas Exploration & Production Select Industry Index, the same index XOP tracks. The leveraged ETF has more than doubled from its Feb. 9 lows, regaining all its losses from the February flash correction. 

Of course, rising oil prices make GUSH an interesting short-term play as does ongoing strength in smaller stocks. The S&P Oil & Gas Exploration & Production Select Industry Index, GUSH's underlying index, is an equal-weight benchmark, meaning it tilts toward smaller and mid-cap energy companies. Its weighted average market value of $23.67 billion is, by definition, large-cap, but comparatively small relative to cap-weighted ETFs.

Translation: if small-cap energy names play catch-up with their larger peers, GUSH could continue surging over the near-term.

Related Links:

Reasons to Consider Small-Cap ETFs.

A Better Commodities ETF.