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This ETF Is Enjoying The Oil Resurgence

ETF Professor

Energy stocks are tracking oil prices higher and that's good news for a slew of exchange-traded funds. On Monday, 24 ETFs hit 52-week highs, 14 of which were oil funds or equity-based energy sector funds.

The PowerShares DWA Energy Momentum Portfolio (NASDAQ: PXI) one of the ETF's in the new 52-week high club. PXI, a smart beta spin on the energy sector, finished April with a monthly gain of about 13.4 percent compared to 9.5 percent for the largest cap-weighted energy ETF.

What Happened

PXI, which is about 11 and a half years old, tracks the Dorsey Wright Energy Technical Leaders Index.

That index “is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 common stocks from the NASDAQ US Benchmark Index,” according to PowerShares. “Relative strength is the measurement of a security's performance in a given universe over time as compared to the performance of all other securities in that universe.”

PXI has a four-star Morningstar rating.

Why It's Important

As a momentum-based strategy, PXI offers investors the potential for more intimate correlations to rising oil prices than are found with traditional cap-weighted energy funds. The average market capitalization of PXI's 42 holdings is $22.62 billion compared to over $100 billion in standard energy ETFs, indicating the PowerShares offering features some leverage to the size factor.

Just over 34 percent of PXI's holdings are classified as large-cap stocks, a departure from legacy energy ETFs where most, if not all, of the holdings are large and mega-cap stocks. Nearly 87 percent of PXI's holdings are oil and gas consumable fuels names and the fund is chock full of refiner stocks, which provided a lift to the fund on Monday amid consolidation in the refiner space.

What's Next

PXI needs a couple of scenarios to play out for it to keep building on its recent gains. Obviously, higher oil prices are one of those scenarios.

The second would be strength in smaller stocks. Approximately 27 percent of PXI's holdings are classified as small-cap stocks. Investors returning to value stocks would help, too. About 32 percent of PXI's components are designated as value stocks.

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