Rising demand from reengaging industrial activities and several supply cuts by oil-producing countries have pushed crude oil prices higher over the past few months. In anticipation of high demand in the coming months as the global economy recovers, OPEC+ plans to gradually curb it output cuts beginning May. However, Russia, a major player in the international oil markets, has already slashed its production by 7.7% to 517 million tons for 2022.
With demand rising significantly, oil prices should continue to rise in the near term–at least until the markets stabilize and supply returns to the pre-pandemic levels. Global oil consumption is expected to reach 104.1 million barrels per day (b/d) by 2026, from 91 million b/d in 2020.
Against this backdrop, we believe ETFs such as Energy Select Sector SPDR Fund (XLE) and VanEck Vectors Oil Services ETF (OIH), which have substantial exposure to the oil stocks, are well positioned to deliver substantial returns in the coming months.
Click here to check out our Industrial Sector Report for 2021
Energy Select Sector SPDR Fund (XLE)
XLE offers exposure to the U.S. energy industry and to many of the world’s largest oil producers. The fund generally invests at least 95% of its total assets in securities from the following industries: oil, gas and consumable fuels, and energy equipment and services. XLE selects its stocks from the S&P 500 rather than from the entire market, so its portfolio mainly favors large caps. The fund has approximately $22.98 billion in assets under management (AUM). XLE’s major holdings include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) and EOG Resources, Inc. (EOG).
XLE has an expense ratio of 0.12%, which is lower than its category average of 0.48%. It has a BBB MSCI ESG Fund Rating. The ETF has distributed $2.09 in dividends annually, which translates to a dividend yield of 4.25%. Its four-year average dividend yield is 5.2%.
XLE is currently trading just 81.5% above its 52-week low of $26.98. The ETF has advanced 55.9% over the past year and 64.7% over the past six months. The ETF’s net inflows amounted to $1.85 billion over the past month.
XLE’s POWR Ratings reflect this promising outlook. The ETF has an overall rating of B, which equates to Buy in our proprietary rating system. XLE has an A for Trade Grade, and a B for Buy & Hold Grade and Peer Grade.
Of the 43 ETFs in the Energy Equities ETF group, XLE is ranked #7.
VanEck Vectors Oil Services ETF (OIH)
OIH tracks the largest 25 oil service companies listed in the United States. The ETF heavily favors its top 10holdings. Approximately one-fourth of the fund is invested in foreign equities because several firms on its target list are cross listed on foreign exchanges or have their headquarters beyond outside of the U.S. With $1.22 billion in assets under management, OIH’s major holdings are Schlumberger NV (SLB), Halliburton Company (HAL) and Baker Hughes Company (BKR).
OIH has an MSCI ESG Fund Rating of BBB. The fund has an expense ratio of 0.35%, compared to the category average 0.48%. The ETF has distributed $1.89 as dividends annually, which translates to a 0.99% dividend yield. Its four-year average dividend yield is more than 2%.
OIH is trading 129.8% above its 52-week low of $82.66. The ETF has advanced 118.4% over the past year and 92.6% over the past six months. The ETF has seen net inflows of $249.48 million during the last month.
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XLE shares were trading at $49.12 per share on Wednesday afternoon, up $0.14 (+0.29%). Year-to-date, XLE has gained 30.98%, versus a 9.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
More Resources for the Stocks in this Article
| Ticker | POWR Rating | Industry Rank | Rank in Industry |
| XLE | Get Rating | Get Rating | Get Rating |
| OIH | Get Rating | Get Rating | Get Rating |
