SSGA’s Bartolini suggests investors check out the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which carries a 0.35 percent expense ratio and has rebounded 15 percent this year after a 9.5 percent pullback in 2017. Around 42 percent of that ETF is invested in mid-cap energy producers and another 28 percent in small caps.
VanEck’s Rakszawski thinks investors should consider the energy refining industry. “Crack spreads (the difference between energy input costs and refined product prices) are attractive, which bodes well for profitability, and demand for refined products remains strong,” he says. The VanEck Vectors Oil Refiners ETF (CRAK), which sports a 0.59 percent expense ratio, owns firms that are seeing strong profit growth these days.
The top five holdings in this fund are expected to increase profits by an average of 38 percent this year, and another 20 percent in 2019. Against that backdrop, they appear reasonably valued, at around 12.4 times projected 2018 profits, according to Morningstar.
Major oil producers such as Saudi Arabia and Russia have suggested that the current level of oil prices are in an ideal range. Not high enough to choke off demand, but still able to generate strong revenues for their governments. Pair that with a newfound spending discipline among U.S.-based energy producers, and it looks as of the sector will enjoy stable operating conditions for the foreseeable future.
At this point, the biggest risk to energy prices would be a broad-based global economic downturn, which saps demand for energy. But no such downturn appears on the horizon. That means the energy sector should continue to build upon the strong market gains that began in early April.