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 rose on Friday on OPEC’s supply cut signals. Brent rose 4.4% for the week, and the West Texas Intermediate was set to rise 2.5%. Saudi Arabia signaled that OPEC could cut outputs. The United Arab Emirates also stated that the country was aligned with Saudi Arabia’s plans regarding the crude market.

German bank Commerzbank stated, “The impression remains that Saudi Arabia is not willing to tolerate any price slide below $90. Speculators could view this as an invitation to bet on further price rises without the need to fear any more pronounced price declines.”

The ETF has gained 68% over the past year, 49.3% year-to-date, and 17.4% over the past six months, compared with the broader SPDR S&P 500 ETF Trust (SPY) 10%, 14.7%, and 7.2% decline over the same periods, respectively. The ETF closed the last trading session at $82.84. 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 August 26, XLE has $38.55 billion in assets under management and a NAV of $82.83. Its gross expense ratio of 0.10% is significantly lower than the category average of 0.46%. The fund has a net flow of $194.29 million over the past year and $287.89 million over the past month.

Top Holdings

As of August 26, the fund’s top holdings include Exxon Mobil Corporation (XOM) with a 22.66% weight, Chevron Corporation (CVX) with a 20.95% weight, ConocoPhillips (COP) with a 4.89% weight, Occidental Petroleum Corporation (OXY) with a 4.74% weight, and EOG Resources, Inc. (EOG) with a 4.39% 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 5.48%.

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 B.

Click here to see the POWR Ratings for XLE.

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

Bottom Line

Oil prices are expected to stay buoyed as OPEC plans to reduce supply. This should bode well for XLE. Moreover, given the strong fund stats and attractive dividend, 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 have an overall A (Strong Buy) rating.

XLE shares were trading at $84.64 per share on Monday morning, up $1.80 (+2.17%). Year-to-date, XLE has gained 55.69%, versus a -14.55% 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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