Tuesday, August 27, 2013

War Drums Reverberate in Energy ETFs

Buy when the bombs fly but in the meantime focus on energy.  5 of today’s top 10 are US funds with 3 of them energy sector based.   Regular readers know the 2nd place SPDR S&P Oil & Gas Exploration & Production Fund (XOP) as a member of the top 10 for most of 2013.  It has had a rocky ride but mostly kept pace with the S&P 500’s huge rally.  iShares’ competing Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) in 5th place, has spent most of this year in the top 50 and performed about as well depending on the time frame. If you like them big and broad, SPDR’s big daddy Energy Select Sector Fund (XLE) with over $8 billion in AUM places 9th today and has only begun to outperform since last week’s “moral obscenity” in Syria.

Comparing the group in the ETFGsm Scanner (sort by Quant and check each fund’s compare box and then the orange Compare button) we see them trading at discounts to the market with higher Risk Ratings.  The discounts suggest we may be currently on the favorable side of that higher risk.  You can choose which metrics to display under the Filter button and see the group’s Quant Report with that button.  The notable Quant differences appear among the E&P funds where IEO has better sentiment readings thanks to higher put/call and short interest scores.  Differences in constituents account for the disparate Fundamental Scores where XOP’s 79.9 beats IEO’s 67.4.  The ETFGsm Tearsheets show XOP is equally weighted with Forest Oil at 1.81% in its top position while IEO has Occidental Pete accounting for 13.2% of AUM.  If you sort each fund’s constituents alphabetically they look more similar.  XLE is market cap weighted with Exxon Mobil holding more than 16% of assets.

We do not yet know what the consequences will be for Syria crossing the red line but months of Hans Blix playing cat and mouse with tyrants may make energy the only place to hide.  ETF Global® does not do geopolitics but they have a way of affecting the market based indicators so integral to our quantitative models.  Those strengthening Behavioral metrics have met strong Fundamentals to place these 3 among today’s top 10.  We will listen to the beat of the war drums and convey the models’ message each day, thanks for checking in today. 

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