Energy Select Sector SPDR Fund (XLE) aims to provide before-expenses investment results that correspond with the price and yield performance of the Energy Select Sector Index companies. The fund follows a replication strategy and offers exposure to the United States energy sector and can be used as a tactical overlay for investors looking for exposure when oil prices show promise.

Oil prices are soaring again on concerns over a tight supply during the upcoming winter season. The global oil supply is expected to tighten when a European Union embargo on Russian oil takes effect in December. Moreover, the G7 countries’ expected price cap on Russian oil to limit Russia’s oil export revenue could skyrocket gasoline prices in winter.

The ETF has gained 71.8% over the past year, 47.9% year-to-date, and 6.8% over the past six months, compared with the broader SPDR S&P 500 ETF Trust (SPY) 7.7%, 13.5%, and 2.2% decline over the same periods, respectively. The ETF closed the last trading session at $82.08. XLE has a five-year monthly beta of 1.58.

Here are the factors that could affect XLE’s performance in the near term:

Steady Fund Stats

As of September 12, XLE has $37.66 billion in assets under management and a NAV of $82.06. Its gross expense ratio of 0.10% is significantly lower than the category average of 0.46%. The fund has a net inflow of $11.13 billion over the past three years and $7.10 billion over the past five years.

Top Holdings

As of September 9, the fund’s top holdings include Exxon Mobil Corporation (XOM) with a 22.97% weight, Chevron Corporation (CVX) with a 21.08% weight, ConocoPhillips (COP) with a 5.02% weight, EOG Resources, Inc. (EOG) with a 4.47% weight, and Occidental Petroleum Corporation (OXY) with a 4.34% weight.

Attractive Dividend

XLE’s annual dividend of $2.16 yields 3.75% on prevailing prices. Its dividend payouts have increased at a 9.5% CAGR over the past three years and a 10.8% CAGR over the past five years. The fund has a four-year average yield of 5.49%.

POWR Ratings Reflect Promising Prospects

XLE’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

XLE has a Trade grade of A and a Buy & Hold and Peer grade of B. In the 45-fund Energy Equities ETFs group, it is ranked #9. The group is rated A.

Click here to see the POWR Ratings for XLE.

View all the top ETFs in the Energy Equities ETFs group here.

Bottom Line

The anticipated tight supply over the northern hemisphere in the upcoming months might cause oil prices to rise significantly, which should support XLE. Moreover, given the strong fund stats and attractive dividend payouts, I think the ETF might be a solid buy now for investors looking for energy sector exposure.

How Does Energy Select Sector SPDR Fund (XLE) Stack Up Against its Peers?

While XLE has an overall POWR Rating of B, one might consider looking at its industry peers, iShares U.S. Energy ETF (IYE) and First Trust Energy AlphaDEX Fund (FXN), which also have an overall A (Strong Buy) rating.

XLE shares rose $0.69 (+0.84%) in premarket trading Tuesday. Year-to-date, XLE has gained 50.98%, versus a -12.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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