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Energy ETFs Dominate Sector Inflows


Investors are rewarding the recently strong performances turned in by equity-based energy sector exchange traded funds with heaping amounts of cash.

The Energy Select Sector SPDR (XLE) is this year’s second-best of the nine sector SPDR ETFs, trailing only the Utilities Select Sector SPDR (XLU) . However, XLE, which is up 11.2% over the past 90 days and has been consistently hitting new all-time highs on an almost daily basis, is tops in at least one category: Inflows. [Energy ETFs Sparked by Low Valuations]

XLE has pulled in almost $2.6 billion this year as investors have flocked to energy stocks and ETFs away from momentum fare. No ETF has pulled in more new assets than XLE this year. The ETF’s 2014 inflows are more than triple those to XLU and more the new capital allocated to the Financial Select Sector SPDR (XLF) .

As the energy sector lagged last year, XLE was shuffled from the third spot among the nine SPDRs in terms of assets to fifth. This year, XLE has reclaimed the third spot as investors have favored the energy sector’s compelling valuations.

“The U.S. energy sector trades at 1.9x book value, a significant discount to the broader market and the sector’s own history. On a global basis, the sector is even cheaper, with an average price-to-book ratio of around 1.5,” BlackRock Global Chief Investment Russ Koesterich said in a note out earlier this week.

The iShares U.S. Energy ETF (IYE) has brought in $591.5 million in new assets this year while the iShares Global Energy ETF (IXC) has 2014 inflows of over $19 million. [Global Energy ETFs Shine]

Inflows to energy ETFs have persisted despite significant geopolitical risk created Russia’s invasion of Ukraine and subsequent sanctions against Russia by Western nations. On Thursday Russian officials warned that companies leaving the country due to the Western sanctions will not be invited back soon and warned that energy companies that departed will be quickly replaced by rival firms.

Dow component Exxon Mobil (XOM), the largest U.S. oil company and XLE’s largest holding at 15.7% of the ETF, is due to commence a major Arctic drilling project with OAO Rosneft in the coming years. Royal Dutch Shell (RDS-A) and BP (BP) Thursday reaffirmed their commitment to Russian projects.

Exxon, Shell and BP combine for 26.7% of IXC’s weight. Italy’s Eni (NYSE: E) and Norway’s Statoil (STO) are among the other western oil majors with Russia exposure. Those stocks combine for over 3% of IXC, according to iShares data.

Energy Select Sector SPDR