It has been a challenging year for the stock market due to various macroeconomic and geopolitical concerns. The S&P 500 is down 16.5% year-to-date. However, the energy sector has been the best performing sector this year, with 40.8% returns year-to-date.

Energy Select Sector SPDR Fund (XLE) is one of the most popular energy ETFs as it offers exposure to the U.S. energy industry. Launched by State Street Global Advisors, Inc., it tracks the performance of the Energy Select Sector Index, which contains selected U.S. energy companies in the S&P 500.

The fund has gained 41.1% in price year-to-date and 62% over the past year to close the last trading session at $78.30.

The war between Ukraine and Russia led to a spike in energy prices globally. Although crude oil prices recently fell below $90 a barrel for the first time in more than seven months, many analysts believe that oil prices will rise again by the end of this year due to reserve concerns and the expected energy crisis that Europe is expected to face this winter.

Truist Securities Managing Director of Energy Research Neal Dingmann believes that oil could fall to around $80 a barrel before jumping to $110 at the beginning of next year. “Domestically, whether it’s oil or it’s gas, these companies have very, very limited incremental capacity at this time,” he added.

Here are the factors that make XLE a solid investment now:

Fund Stats

As of September 07, XLE had $36.09 billion in assets under management and a NAV of $78.31. Its gross expense ratio of 0.10% is significantly lower than the category average of 0.46%.

Top Holdings

As of September 07, the fund’s top holdings include Exxon Mobil Corporation (XOM), with a 23.08% weighting in the fund, followed by Chevron Corporation (CVX) at 21.05%, and ConocoPhillips (COP) at 4.93%.

Attractive Dividend

XLE’s dividend payouts have increased at a 9.5% CAGR over the past three years and a 10.7% CAGR over the past five years. Its four-year average dividend yield stands at 3.06%. XLE pays an annual dividend of $2.80, which yields 3.58% at the prevailing share price.

POWR Ratings Reflect Promising Prospects

XLE’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall B rating, which equates to a Strong 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 an A for Trade and a B for Peer grade. It is ranked #8 of 45 ETFs in the B-rated Energy Equities ETFs category.

Click here to see XLE’s rating for Buy & Hold grade.

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

Bottom Line

Despite the fall in crude oil prices below $90, analysts expect them to bounce back very soon and rise above $100 by the end of this year on account of reserve concerns and the expected energy crisis in Europe. XLE has significantly outperformed the broader market this year and is expected to do well in the upcoming months.

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

XLE has an overall POWR Rating of B, which equates to a Buy rating. Check out these other ETFs within the Energy Equities ETFs group with A (Strong Buy) or B (Buy) ratings: iShares U.S. Energy ETF (IYE), First Trust Energy AlphaDEX Fund (FXN), and Vanguard Energy Index Fund (VDE).

XLE shares were trading at $78.54 per share on Thursday morning, up $0.24 (+0.31%). Year-to-date, XLE has gained 44.47%, versus a -15.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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