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5 Energy ETFs Look Solid on Rank Upgrade, Oil Price Rise

Sweta Killa

Oil price has risen sharply after the historic collapse in April led by improving demand and supply dynamics. This is especially true given the past and potential production cuts by major oil producers and an uptick in demand due to the lifting of COVID-19 restrictions (read: Crude Saw Best Month Ever: Are Energy ETFs Ready to Jump?).

Oil producers have started scaling back their production at record levels. OPEC, the 14-nation organization, and its allies agreed to cut production by 9.7 million barrels per day for two months effective May 1 and may extend its cut in July or August. Saudi Arabia has pledged to reduce its output by an additional one million barrels per day starting June. UAE and Kuwait have announced additional cuts of 1.18 million barrels per day in June. Production has dropped to 11.4 million barrels per day in the United States from March’s record of 13.1 million barrels per day. Norway and Canada are among the other nations that have scaled back output. Further, stockpile is also declining slowly, easing a storage crisis.

Meanwhile, the demand picture has started to improve with countries across the globe loosening lockdown measures. Most notably, oil demand in China, the second-largest market in the world accounting for 15% of global oil demand, is returning to pre-pandemic levels. For 2020, the IEA now expects global crude demand to fall by 8.6 million barrels a day versus its April forecast of a decline of 9.3 million barrels a day.

Notably, oil price registered its best month in history, climbing about 88% last month. Brent is currently hovering around $40 for the first time since March while crude climbed to near $38.

Given the impressive trends, many energy ETFs now carry a Rank #3 (Hold) against #4 (Sell) or #5 (Strong Sell) in the latest ratings update, indicating strong potential for these funds in the coming months (see: all the Energy ETFs here).

Energy Select Sector SPDR XLE

This is the largest and most-popular ETF in the energy space with AUM of $10.4 billion and average daily volume of 29.1 million shares per day. The fund follows the Energy Select Sector Index and holds 26 securities in its basket. It charges 13 bps in annual fees and has gained 9.2% in a month.

VanEck Vectors Oil Services ETF OIH

With AUM of $479 million, this ETF tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to the companies involved in providing oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. It is home to 24 stocks and charges 35 bps in annual fees. Volume is solid, exchanging around 649,000 shares in hand on average. The product soared 23.1% in a month (read: U.S. Manufacturing Points to a Recovery: 5 Winning ETF Areas).

SPDR S&P Oil & Gas Equipment & Services ETF XES

This fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 30 stocks in its basket with AUM of $93.6 million. The ETF trades in average daily volume of 190,000 shares a day and charges 35 bps in fees per year from investors. The fund is up 25.9% in a month (read: 5 Sector ETFs at the Forefront of the Small-Cap Rally).

iShares U.S. Oil Equipment & Services ETF IEZ

With AUM of $201.7 million, this ETF offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction by tracking the Dow Jones U.S. Select Oil Equipment & Services Index. It holds 30 securities in its basket and charges 42 bps in fees per year. The product sees moderate average daily volume of 315,000 shares and has gained 23.2% in a month.

First Trust Nasdaq Oil & Gas ETF FTXN

This fund follows the Nasdaq US Smart Oil & Gas Index, which measures the performance of the most liquid oil and gas securities from the NASDAQ US Benchmark Index screened through volatility, value and growth. It has a basket of 50 stocks and amassed $19.6 million in its asset base. The product trades in average daily volume of around 21,000 shares and charges 60 bps in annual fees.

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