Wait a Minute. Is ENERGY Really Leading the ETF Charge?

Wait a minute. Is ENERGY really leading the latest ETF charge? It can’t be, can it?

That was my reaction when I created and analyzed this S&P Sector Short-Term Performance Screener. But it’s true!

Take a look for yourself at the table below and you’ll see that on a 10-day basis ending Wednesday, the Energy Select Sector SPDR Fund (XLE, Rated “C-”) led the way among major S&P 500 sectors with a 2.8% return. It was closely followed by the Health Care Select Sector SPDR Fund (XLV, Rated “B”) at 2.6%, while the Consumer Discretionary Select Sector SPDR Fund (XLY, Rated “B”) brought up the rear at -0.04%.

Data Date: 9/13/2017

One factor is strong demand and tighter supply for gasoline in the wake of Hurricanes Harvey and Irma. Gasoline inventories plummeted by a record 8.4 million barrels in the week ended September 8, according to the Energy Information Administration, while demand jumped by half a million barrels.

Crude oil demand is also likely to pick up as Texas refineries resume normal operations now that Harvey is history. Plus, the International Energy Agency just forecast that global oil demand would rise by the most since 2015 this year. That has helped push oil prices back to the $50-a-barrel area from a multi-month low near $42 in June.

Of course, we’ve seen previous energy rallies that have fizzled out. One look at the column for year-to-date total returns shows what that has meant for the XLE. It’s still down 12% in 2017 even after the recent rally.

But if you’re looking for a sector that’s down-and-out, dirt-cheap, and that COULD offer more upside than its overbought, already-widely-held counterparts, energy could be just what the doctor ordered. To help you identify potentially promising sector plays, I ran a separate screen of all energy equity and commodity ETFs. It eliminated any ETFs with a Weiss Rating of SELL and assets of less than $5 million.

The VanEck Vectors Oil Refiners ETF (CRAK, Rated “C”) and the Tortoise North American Pipeline Fund (TPYP, Rated “C”) ended up as the standouts year-to-date – with gains of 24.7% and 2% respectively. But the aforementioned XLE and the Fidelity MSCI Energy Index ETF (FENY, Rated “C-”) performed the best over the past 10 days. I recommend you start allocating money to ETFs like these. Then if the energy sector’s performance continues to improve, build that stake up in the weeks ahead.

Until next time,

Mike