The energy sector has been witnessing a solid trend over the past month on intensified geopolitical tensions in Russia. In fact, energy is the best performing sector in the S&P 500 index, rising nearly 4.7% this month against 0.4% decline in the index.
This is because Russia is a major supplier of oil and more penalties on it because of interventions in Ukraine could disrupt global supply, leading to higher oil prices and energy stocks (read: 3 Commodity ETFs Surging on Russia Sanctions).
Further, Q1 results for 21% of the sector’s total market capitalization reported so far seem impressive with earnings beat ratio of 71.4% and revenue beat ratio of 42.9% amid frigid weather. Strong performances by top oilfield players such as Schlumberger (SLB), Baker Hughes (BHI) and Halliburton (HAL) are fueling growth in the broad sector.
In fact, energy is one of the leading sectors after utilities, medical and business services this earnings season, as per the Zacks Earnings Trends. However, earnings growth of 13.7% is much lower than 22.8% growth in the prior quarter for the same market cap. This is especially true as Europe’s third largest oil company, BP plc (BP) failed to meet our expectations.
BP Earnings in Focus
The British oil giant reported earnings per ADS of $1.05 per share, which missed the Zacks Consensus Estimate of $1.10 and was well below the year-ago earnings of $1.32. Revenues dropped 13.3% to $92.9 billion. The lackluster performance was credited to lower production and weak earnings at refineries (read: 3 Energy ETFs Marching Higher in the Past Week).
Despite disappointing results, the company remained committed to reward shareholders. BP raised its quarterly dividend by 8.3% to 9.75 cents per share, marking the second increase in six months. Additionally, the company plans to divest another $10 billion in assets by 2015; the proceeds will be used to reward shareholders in the form of buybacks.
While weak earnings result speaks unfavorably for the company, the strategy of boosting shareholders return has spread bullishness in its growth story. The shares of BP spiked roughly 3% in yesterday trading on elevated volume.
ETFs in Focus
Given this, most of the ETFs having the largest allocation to this big oil giant are in focus in the coming days. Investors should carefully watch whether BP could continue to maintain strength in these energy ETFs and grab an opportunity wherever it arises (see: all the Energy ETFs here):
SPDR S&P International Energy Sector ETF (IPW)
This fund provides exposure to the energy companies of developed markets excluding the U.S. by tracking the S&P Developed Ex-U.S. BMI Energy Sector Index. It is less popular and illiquid with AUM of $13.8 million and average daily volume of less than 6,000 shares. The ETF charges 50 bps in fees per year from investors.
In total, the fund holds about 132 securities in its basket. Of these firms, BP occupies the second position with 10.20% of total assets. About 90% of the portfolio is allocated to oil gas and consumable fuels, and the rest to equipment & services. The product is a large cap centric with a certain tilt toward blend stocks.
In terms of country exposure, United Kingdom takes the largest share at 34.22% while Canada and France also get double-digit exposure at 28.65% and 12.34%, respectively. The product scaled a new 52-week high of $59.00, rising 3.3% in yesterday’s session and added more than 7.8% over the past one month.
iShares MSCI Global Energy Producers ETF (FILL)
This fund manages a $5.1 million in its asset base and provides exposure to 217 global energy producer stocks by tracking the MSCI ACWI Select Energy Producers Investable Market Index. The product has an expense ratio of 0.39% and sees a paltry volume of around 2,000 shares. FILL is also a large cap centric fund with a definite tilt toward value stocks.
Here, BP occupies the third position in the basket at 5.29%. North American firms dominate the fund’s returns with half of the portfolio, followed by Canada (10.41%) and United Kingdom (8.53%). From a sector look, the product is skewed toward oil and gas integrated with 61% share and exploration and production with 32% share.
This ETF made its all-time high of $27.77 following BP’s results and was up 1.25% on the day. The fund returned 7.5% over the past one month (read: 3 ETFs Hitting All-time Highs in Rocky Market).
iShares Global Energy ETF (IXC)
This ETF follows the S&P Global 1200 Energy Sector Index, giving investors exposure to the global energy space. The fund is relatively popular and liquid with AUM of $1.1 billion and average daily volume of more than 135,000 shares. Expense ratio came in at 0.48%.
The product holds 93 stocks in its basket and BP takes the fourth top spot making up 4.87% of the assets. The oil gas and consumable fuels sector dominates the fund return with 86.7% share while U.S. firms make up for more than half of the portfolio. Here again, the ETF focuses on large caps with slight tilt toward value stocks.
IXC also hit a 52-week high of $46.53, gaining nearly 1% at the close and is up 5.7% over the past one month.
Investors should note that these energy ETFs enjoyed smooth trading yesterday despite BP’s earnings miss. This trend might continue in the near future given solid trading in oil (above the triple-digit mark), supply disruptions and investors eagerness for value stocks in the current market turmoil (read: 3 Low Beta ETFs for This Volatile Market).
As such, investors could make a short-term play on the above-mentioned ETFs, though results from U.S. oil giants such as Chevron (CVX) and Exxon Mobil (XOM) and French giant Total SA (TOT) are yet to come this week, and decide the future performance of the sector.
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- Oil, Gas, & Consumable Fuels