Energy ETF To Benefit
While the days of triple-digit oil prices are probably gone for the foreseeable future, higher prices will be required to incentivize drilling. There's also the possibility that prices temporarily "overshoot" to the upside if demand races too far ahead of supply when the cycle turns in 2016.
That all bodes well for energy exchange-traded funds, which have been beaten down throughout the past year.
The Market Vectors Unconventional Oil & Gas ETF (FRAK | B-29) looks particularly attractive after falling by more than half from its highs. With large positions in high-quality independent exploration and production stocks like EOG Resources and Pioneer Natural Resources, the ETF is well-positioned for any oil rebound.
FRAK holds a relatively concentrated portfolio, with the top 10 stocks making up 56 percent of the fund's holdings. That may discourage some investors from buying the ETF.
In that case, those investors may want to consider the Guggenheim S&P Equal Weight Energy ETF (RYE | A-73), which holds an equal-weighted basket of energy stocks within the S&P 500. The equal-weighting scheme gives the fund a greater tilt toward smaller-sized energy stocks, which should rebound faster than the industry giants that dominate the market-cap-weighted Energy Select SPDR (XLE | A-93).
Returns For FRAK, RYE, XLE Since June 2014 Highs
Contact Sumit Roy at [email protected].