ETF Talk: Ready to Energize Your Portfolio?

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

After a few weeks spent examining narrow segments of the energy sector, today’s ETF Talk takes the opposite approach by zooming out to look at the energy industry as a whole. An exchange-traded fund (ETF) which takes such a wide-lens perspective is the Energy Select Sector SPDR (XLE). With demand in energy practically guaranteed to continue increasing, any fund that invests in many different methods of energy production is sure to profit.

XLE is a non-diversified fund that seeks, before expenses, investment results which correspond generally to the performance of companies in an index which includes companies in the oil, gas and consumable fuels, and energy equipment and services industries.

The fund has gained 7.54% so far this year, and it offers a quarterly dividend, reaching a yield of 1.67%. As the chart shows, the fund has recovered nicely from a dip last May. XLE seems ready to resume an upward move, especially as developing nations demand ever-increasing amounts of the global energy supply and the United States consequently is working on developing a measure of energy independence through domestic supplies.

This ETF’s holdings clearly demonstrate its status as an energy fund: 98.71% of its assets are invested in the sector. The remaining 1.29% is in the basic materials sector, presumably because basic materials are needed to build the infrastructure energy requires. XLE’s top ten individually held companies comprise 60.09% of its total assets and include some names recognizable to the common consumer. The top five of these are: Exxon Mobile Corporation, 17.62%; Chevron Corporation, 14.98%; Schlumberger N.V., 6.90%; Occidental Petroleum Corporation, 3.73%; and ConocoPhillips, 3.33%.

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As the last few weeks of ETF Talk articles have shown, the best energy investment at the moment is traditional fuels. XLE’s heavy allocation to established public fuel companies is a sign that the fund is going with what the market is rewarding. As demand increases further, expect XLE, with its sight cast on the broad spectrum of the energy industry, to capitalize on the rising profits such demand will produce.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

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