Energy ETFs Head To Head: XLE Vs. IYE

The energy sector has been attracting a lot of investor attention lately. Oil prices have been relatively stable lately, owing to the recent supply cut extension by OPEC.

What Lies Ahead for Crude?

OPEC recently extended its production cut till late 2018, in order to drive crude prices. Moreover, talks of OPEC working on an exit strategy for its supply cut have provided support to crude prices. Fading prospects of an abrupt end to the production cut deal when the excess inventories are cleared out led to a rally in crude prices.

Moreover, crude inventories in the United States fell 6.5 million barrels in the week ending Dec 15, compared with analyst expectations of a decrease of 3.8 million barrels.

However, there are increasing headwinds related to the future of crude oil. U.S. inventories have been extremely volatile and whether it will be able to stabilize the prices is still uncertain. Moreover, the U.K. North Sea pipeline is scheduled to restart in January. The North Sea pipeline carries around 450,000 barrels of crude per day to Britain and was closed after an inspection revealed a crack in an onshore section of the pipeline. This weighed on crude prices.

Let us now discuss two ETFs focused on providing exposure to the sector.

Energy Select Sector SPDR Fund (XLE – Free Report)

This fund seeks to provide exposure to energy stocks and tracks the Energy Select Sector Index. It has AUM of $17.4 billion and charges a low fee of 14 basis points a year. It has 32 holdings and bears significant concentration risk as more than 72% of the assets are allocated to the top 10 holdings.

From a sector look, the fund has exposure to Oil, Gas & Consumable Fuels and Energy Equipment & Services, at 85.4 and 14.6%, respectively (as of Sep 30, 2017). The fund’s top three holdings are Exxon Mobil Corp (XOM – Free Report) , Chevron Corp (CVX – Free Report) and Schlumberger Ltd (SLB – Free Report) , with 22.7%, 17.1% and 6.8% allocation, respectively (as of Dec 20, 2017).The fund has lost 6.1% in a year and 4.7% year to date (as of Dec 21, 2017). XLE has a Zacks ETF Rank #3 (Hold) with a High risk outlook.