The energy sector rules the market and you can participate with these ETFs
In recent months, we have seen that the energy sector can be generous, but also quite wild. This can be avoided quite well by diversifying with ETFs, which we will now look at.
SPDR S&P Oil & Gas Exploration & Production ETF $XOP+1.9%
XOP is an ETF that provides exposure to the stock price performance of large U.S. oil and gas exploration and production companies. It tracks the performance of the S&P Oil & Gas Exploration & Production Select Industry Index, which includes industry leaders such as ExxonMobil, EOG Resources $EOG+2.5%, ConocoPhillips $COP+1.6%, Chevron $CVX+1.4% and Pioneer Natural Resources $PXD+1.1%.
Despite diversification through the index, this ETF is considered a riskier fund that has delivered rather average to below-average performance in the past.
However, for investors seeking exposure to this area of the economy, this fund provides a tradable and relatively inexpensive option with total annual expenses of 0.35%
iShares Global Energy ETF $IXC+1.1%
The iShares Global Energy ETF is an ETF that focuses on stocks of companies in the energy sector from around the world.
The fund aims to provide investors with exposure to global energy markets and allow them to invest in stocks of companies from various regions, including North America, Europe and Asia-Pacific.
The fund's portfolio includes more than 150 companies, with the largest holdings coming from oil and gas exploration and production companies. The fund's largest holdings include companies such as Exxon Mobil $XOM+1.1%, Chevron $CVX+1.4%, Royal Dutch Shell $SHEL+0.3% and BP $BP+0.8%.
The IXC is constructed to mirror the performance of the S&P Global Energy Index, a benchmark comprised of the 90 largest companies from around the world that are engaged in the extraction, processing or distribution of energy. The fund is diversified geographically and by sector, which helps minimize the risks associated with concentration in any one market or sector.
IXC is traded on NYSE Arca and provides investors with easy access to the global energy sector at relatively low cost. The Fund also has relatively high liquidity, which means that investors can easily buy and sell shares of the Fund.
As the energy sector is generally considered cyclical and sensitive to changes in commodity prices and the global economic situation, IXC may be suitable for investors with a greater appetite for risk or those seeking to diversify their portfolio.
The energy sector is cyclical for several reasons. First, the energy sector is highly dependent on commodity prices, particularly oil and natural gas prices, which are highly volatile and can change significantly depending on the global economic situation, geopolitical events, and market supply and demand. For example, if there is an oversupply surplus in the oil market, oil prices may fall significantly and thus have a negative impact on the performance of energy companies.
Second, the energy sector is very sensitive to changes in the global economy and the general economic climate. If there is an economic recession or a drop in energy demand, the revenues of energy companies may decrease and have a negative impact on the performance of the sector. Conversely, if there is economic growth and an increase in energy demand, energy companies may benefit and improve their performance. We have seen this recently.
Thirdly, the energy sector is also highly dependent on political and regulatory changes in the countries where companies operate. For example, changes in tax rates, stricter environmental regulations or restrictions on mining in certain areas can have a significant impact on the performance of energy companies.
Invesco S&P 500 Equal Weight Energy ETF $RYE+1.0%
As the name implies, things will be different here. RYE focuses on companies in the energy sector, but unlike traditional sector-focused ETFs, RYE applies a balance between the companies in the portfolio.
This means that each company in the portfolio has an equal weighting, allowing smaller companies in the energy sector to have the same impact on the fund's performance as larger companies. The balance in the portfolio also minimizes the risk of concentration in any one company or group of companies.
RYE is constructed to mirror the performance of the S&P 500 Equal Weight Energy Index, an index made up of an equal number of stocks from each company in the portfolio. This index differs from the traditional S&P 500 Energy Index, which is weighted by the market capitalization of companies. The fund is also traded on the NYSE Arca exchange and, as before, allows investors easy access to the energy sector through a standard broker.
Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.