Another earnings season is here and oil prices have been soaring, meaning now could be the ideal time for investors to re-evaluate their energy ETF holdings. Two of the most popular members of energy ETF fray, the Energy Select Sector SPDR (XLE) and the Vanguard Energy ETF (VDE) , are up an average of 14% this year.
However, that is something of a disappointment when considering the S&P 500 is up 17%. While U.S. oil production has been soaring thanks to the shale boom, crude prices have jumped, too. In the past three months, the U.S. Oil Fund (USO) has climbed nearly 11%, but equity-based energy funds have had a difficult time keeping pace. [Shale Boom Sparks Energy ETFs]
VDE and XLE are each up about 3.5% over that time, but a rival ETF has struggled and that fund could be put to the test this earnings season. That ETF is the PowerShares Energy Exploration & Production Portfolio (PXE) , which has been left behind during oil’s recent rally. [Energy ETFs Surge as Oil Tops $100]
There are important differences between PXE and ETFs such as VDE and XLE. The Vanguard and SPDR offerings, like most cap-weighted energy funds, are heavily allocated to Exxon Mobil (XOM) and Chevron (CVX), the two largest U.S. oil companies. PXE is not a cap-weighted fund and currently does not include Exxon and Chevron among its 30 holdings. By market value, ConocoPhillips (COP) is PXE’s largest constituent, though by weight that stock is the ETF’s third-largest holding.
PXE’s problem is not exposure to stocks like ConocoPhilips or Anadarko Petroleum (APC). Rather, it is the fund’s weights to refiners, something that served investors well earlier this year when refining shares were energy sector leaders. However, the air has started to come out of that trade and expectations are not rosy ahead of second-quarter earnings..
Barclays said it lowered its earning estimates for refiners by 18% in the second quarter, by 24% for the full year 2013, and by 21% in 2014, reports Claudia Assis for MarketWatch.
That report did not specify which refiners Barclays lacks enthusiasm for, but the charts give investors clues regarding the refiners that probably should be avoided in the near-term. In the past month, Phillips 66 (PSX) is down more than 14% while Marathon Petroleum (MPC) has tumbled over 17%. Valero (VLO) is lower by 14.1%. Those stocks combine for 13.3% of PXE’s weight and the ETF is home to at least five other stocks with refining exposure.
Investors will not have to wait long to see how refiners’ earnings will impact PXE. Valero reports on July 23 followed by Phillips 66 on July 31 and two more of the ETF’s holdings on August 1.
PowerShares Energy Exploration & Production Portfolio
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.