Posted on by Micah McDonald

Best Long-Term Performance Energy Sector ETFs 1.2

  • The oldest Energy Sector ETF available outperformed an S&P 500 index fund by 1.80% CAGR over the last 19 years
  • The Energy industry has relatively low correlation to the broad U.S. Equity market. Energy’s correlation coefficient has been 0.61 for nearly 20 years
  • There are 26 Energy ETFs available. 15 of those funds are 10 years old or older

Here’s how the oldest Energy ETF, Energy Select Sector SPDR® Fund (XLE), has performed since its’ inception date of December 16, 1998. Take note that the U.S. Market correlation is 0.61 for XLE while the S&P 500 is 0.99.

XLE vs S&P 500: January 1999 – September 2018

Source: https://www.portfoliovisualizer.com/

Here’s a chart from KOYFIN showing the same information, but with a different style chart.

XLE vs SYP: December 22, 1998 – October 10, 2018

Source: https://www.koyfin.com/home

According to Morningstar, there are currently 26 ETFs in the Energy category. 15 of these ETFs have inception dates that are 10 years old or older. I have compared each of these 15 ETFs head-to-head and ranked them base on long-term performance only. There was no research done on valuations, quality or suitability. Energy investors, please perform your own due diligence when selecting an Energy ETF to invest in. (Data from 10/09/2018)

Source: https://www.morningstar.com/

The top 4 long-term performance Energy ETFs were PXE, XLE, PXI and IEO. The following chart shows the 4 funds as compared with the SPY ETF over the last 12 years.

PXE vs XLE vs PXI vs IEO vs SPY: October 12, 2006 – October 10, 2018

Source: https://www.koyfin.com/home

In the following chart, I have compared all 4 of the top Energy ETFs with the back-testing tools at Portfolio Visualizer. The data in this chart does not include any data from October 2018, so the ETFs are ranked slightly differently.

PXE vs PXI vs IEO vs XLE:  November 2006 – September 2018

Source: https://www.portfoliovisualizer.com/

Now, let’s turn our attention to the stated objectives and details of these top 4 Energy ETFs.

PXE – The Invesco Dynamic Energy Exploration & Production ETF (Fund) is based on the Dynamic Energy Exploration & Production Intellidex℠ Index (Intellidex Index). The Fund will normally invest at least 90% of its total assets in the securities that comprise the Index. The Intellidex Index thoroughly evaluates companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value. The Underlying Intellidex Index is composed of securities of 30 U.S. companies involved in the exploration and production of natural resources used to produce energy. These companies are engaged principally in exploration, extraction and production of crude oil and natural gas from land-based or offshore wells. These companies include petroleum refineries that process the crude oil into finished products, such as gasoline and automotive lubricants, and companies involved in gathering and processing natural gas, and manufacturing natural gas liquid. The Fund is rebalanced and reconstituted quarterly in February, May, August and November. (Best long-term performance)

XLE – The Energy Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index (the “Index”). The Index seeks to provide an effective representation of the energy sector of the S&P 500 Index. Seeks to provide precise exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries. Allows investors to take strategic or tactical positions at a more targeted level than traditional style-based investing. (Best dividend – lowest expense ratio)

PXI – The Invesco DWA Energy Momentum ETF (Fund) is based on the Dorsey Wright® Energy Technical Leaders Index (DWA Energy Technical Leaders Index). The Fund will normally invest at least 90% of its total assets in the securities that comprise the Index. The Index is designed to identify companies that are showing relative strength (momentum) and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe. The Fund and the Index are rebalanced and reconstituted quarterly. (Best 1 year performance)

IEO – The iShares U.S. Oil & Gas Exploration & Production ETF seeks to track the investment results of an index composed of U.S. equities in the oil and gas exploration and production sector. Exposure to U.S. companies that are engaged in the exploration, production, and distribution of oil and gas. Targeted access to domestic oil and gas stocks. Use to express a sector view. (Lowest U.S. Market correlation)

Investors considering putting money to work in the Energy sector should consider doing so with caution. This industry is extremely volatile and significantly impacted by the price of crude oil and natural gas. Investors should have an extremely long-term investment time horizon in this sector for their investments to payoff. There is a risk premium paid for owning this sector, but sometimes you must wait about a decade for that premium to be paid.

Thank you for taking time to read this article. If you found it useful, please share it with a friend.

Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator

Disclosure: We own shares of XLE and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.

I invite you to read my previous article on the Energy sector right here:  Discovering Value in the Top 3 Energy ETFs