A Fund That Provides Exposure to Energy

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

The Energy Select Sector SPDR® Fund (NYSEARCA: XLE) is an exchange-traded fund (ETF) that can give a prospective investor access to the segment of the global economy that is involved with energy.

Specifically, XLE tracks the Energy Select Sector Index, which, in turn, attempts to provide an effective representation of the energy sector of the S&P 500 Index. Currently, the fund’s assets are divided between two industries, Oil, Gas and Consumable Fuels, 90.35%, and Energy, Equipment & Services, 9.65%.

This fund is invested almost exclusively in U.S. markets. At the same time, this ETF spans all parts of the energy market, including refining, exploration, transportation, related services, drilling and investment trusts.

Since this fund pulls its stocks from the S&P 500 instead of the total market, it is not surprising that it favors large-cap companies and the portfolio is somewhat smaller than many of its peer funds. However, this flaw is more than compensated for by the fact that XLE has formidable liquidity and a strong trading volume.

The fund’s top holdings include ExxonMobil Corporation (NYSE: XOM); Chevron Corporation (NYSE: CVX); Conoco Phillips (NYSE:COP); Schlumberger NV (NYSE: SLB); EOG Resources Inc. (NYSE: EOG); Kinder Morgan Inc. Class P (NYSE: KMI); Phillips 66 (NYSE: PSX); Occidental Petroleum Corporation (NYSE: OXY) and Marathon Petroleum Corporation (NYSE: MPC).

XLE currently has more than $12.25 billion in assets under management and an average spread of 0.02%. It also has an expense ratio of 0.13%, meaning that it is less expensive to hold than many other ETFs.

The fund’s performance has been stable in the short term and mixed in the long term. While it has been up 8.41% as of July 1, it has been down 3.64% over the last three months. Overall, it is up 11.96% year to date.

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In short, while XLE does provide an investor with the ability to profit from the world of energy, the sector may not be appropriate for all portfolios, especially given the current geopolitical situation. Thus, interested investors always should do their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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