Oil ETFs Ride Price Rebound To Different Heights & Lows

September 08, 2016


E&P ETFs Outperform

Close behind the midstream ETFs are a pair of oil & gas exploration and production ETFs that have also surged this year. These funds hold stocks of energy companies that explore, drill for and produce the oil and gas from wells in the ground—those most associated with the "shale revolution" in the U.S.

The VanEck Vectors Unconventional Oil & Gas ETF (FRAK) is at the top of the pack when it comes to E&P ETFs. Its gain of 34.3% comes ahead of the next-best-performing E&P ETF, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which has a return of 25.8%.

FRAK holds a market-cap-weighted basket of companies involved in unconventional oil and gas production. Top holdings include Occidental Petroleum, EOG Resources and Pioneer Natural Resources.

XOP takes a different tack by holding an equal-weighted basket of stocks across the E&P space.

Both ETFs differ significantly from the $15 billion Energy Select Sector SPDR Fund (XLE), which has a big weighting in integrated oil giants such as Exxon Mobile and Chevron. XLE is up 17.8% so far this year.

YTD Returns For FRAK, XOP, XLE

Big Flows Into Leveraged Oil ETNs

Even as energy ETFs have performed well this year, they haven't garnered much interest from investors. That's understandable; after the beating the sector took in 2014 and 2015, it's natural for investors to be shy about wading back into this notoriously volatile part of the market.

That said, there have been a few ETFs to see notable inflows in 2016. Those include the First Trust Energy AlphaDEX Fund (FXN) and the aforementioned XLE, each with inflows of $1.2 billion.

FXN, which is up 11% this year, uses a quant-based model to select its holdings. XLE, of course, tracks a market-cap-weighted basket of all the energy stocks within the S&P 500.

Also garnering significant flows this year is the aforementioned AMLP, with creations of more than $900 million, and the Etracs Alerian MLP Infrastructure Index ETN (MLPI), with creations of almost $310 million.

Finally, the VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI) are a pair of leveraged ETNs that have been popular with traders this year, garnering inflows of $640 million and $480 million, respectively.

UWTI and DWTI are designed for aggressive traders to bet on short-term moves in crude oil futures prices. The former is down 44.1% this year, while the latter is down 58.3%. Leveraged oil ETFs suffer from performance drag due to daily rebalancing and are only meant for very-short-term holding periods.

Contact Sumit Roy at [email protected].


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