Can Energy ETFs Rebound as China Promises Ramped-up Purchases?
Two of the world’s largest economies signed the phase-one trade deal on Jan 15, after nearly two years of a trade spat. The move comes as a relief to global investors.
Under the partial trade accord, China has agreed to buy at least an additional $200 billion worth of U.S. farm products and other goods and services over two years’ time. The figure is above a baseline of purchases amounting $186 billion in 2017.
Notably, Beijing’s commitment includes additional energy purchases amounting to $52.4 billion from the United Statesover the next couple of years (read: ETFs to Gain on China's Upbeat Exports Data for December).
Deal in Detail
It is worth noting here that China is the top oil importer in the world and second-largest liquefied natural gas (LNG) importer. Precisely, China is expected to raise the import amount by $18.5 billion in 2020 and $33.9 billion in 2021 when compared to a baseline of $9.1 billion in 2017
Also, it is being estimated that China may ramp up its crude and LNG imports to 500,000 barrels per day (bpd) and 10 million tons in 2020 along with 800,000 bpd and 15 million tons in 2021 (per a Goldman Sachs forecast in a report dated Jan 10).
Notably, the trade war had a detrimental impact on the United States’ export numbers of crude oil to China. Per the U.S. Census Bureau and the Energy Information Administration, United States exported just about $2.6 billion of crude to China in 2019 through October, in comparison to $5.4 billion in 2018.
Energy ETFs to Gain
On the development, senior vice president at trade group American Fuel and Petrochemical Manufacturers (AFPM), Derrick Morgan commented that, “this is a good first step in removing barriers with one of our most critical trading partners.” In such a scenario, we highlight the energy ETFs that are well-poised to gain.
The Energy Select Sector SPDR Fund XLE
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. It comprises 28 holdings. The fund’s AUM is $10.88 billion and expense ratio is 0.13% (read: Sector ETFs to Watch Out for Until Phase-2 Trade Deal).
Vanguard Energy ETF VDE
The fund seeks to track the performance of the MSCI US IMI Energy 25/50 index that measures the investment return of stocks in the energy sector. It comprises 136 holdings. The fund’s AUM is $3.16 billion and expense ratio is 0.10%.
SPDR S&P Oil & Gas Exploration & Production ETF XOP
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Oil & Gas Exploration & Production Select IndustryIndex. It comprises 58 holdings. The fund’s AUM is $2.53 billion and expense ratio is 0.35% (read: ETF Strategies to Stave Off Middle East Tension).
iShares U.S. Energy ETF IYE
The fund provides exposure to U.S. companies that produce and distribute oil and gas and tracks the Dow Jones U.S. Oil & Gas Index. It comprises 48 holdings. The fund’s AUM is $586.3 million and expense ratio is 0.42%.
Fidelity MSCI Energy Index ETF FENY
The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Energy Index. It comprises 113 holdings. The fund’s AUM is $423.1 million and expense ratio is 0.08%.
Caveat
Although the trade deal will help in ramping up U.S. oil and gas exports over the next couple of years, certain factors like transportation costs, prices and demand will play a key role in achieving the numbers. Moreover, analysts believe that China will have to counter some internal issues like the earlier-imposed tariff of 25% on LNG imports from the United States. Also, per research firm Capital Economics, the refineries in Beijing seem to be technically unprepared for meeting the commitments.
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iShares U.S. Energy ETF (IYE): ETF Research Reports
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
Energy Select Sector SPDR Fund (XLE): ETF Research Reports
SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
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