Winning Energy ETF Nobody's Talking About

August 12, 2015

Energy stocks have been tanking this year. That's not really a surprise to anyone who has been keeping up with developments in the financial markets. The energy sector is the worst group in the S&P 500 so far in 2015, no thanks to a 19 percent slump in crude oil prices.

In turn, most energy-related exchange-traded funds are deep in the red. Of the 82 U.S.-listed energy ETFs out there, only 10 are up year-to-date, and nine of those are inverse funds.

Gasoline Strong

The lone noninverse fund is the United States Gasoline Fund (UGA | C-98), with a 2.9 percent gain for the year. As the name implies, UGA invests in front-month gasoline futures contracts. So far this year, gasoline has significantly outperformed crude oil, rising by 18.3 percent. As is often the case, the futures-based ETF does not match the return of the actual futures index, due to contango.

A combination of strong demand and tight supplies has bolstered prices of gasoline, a refined product. Demand during the past month was 5.4 percent higher than a year ago, according to data from the Energy Information Administration.

At the same time, supplies have been tight due to "refinery downtime on the West Coast caused by accidents, maintenance, and the labor strike," according to Fadel Gheit, energy analyst at Oppenheimer & Co.

PXE Outperforming

While UGA has performed well, it's not the most interesting energy ETF of the year. Another fund that isn't up on the year, but has still performed remarkably well, is the PowerShares Dynamic Energy Exploration & Production ETF (PXE | B-75).

PXE is down 1.1 percent year-to-date, but that's much better than the 11.3 percent loss of the broad Energy Select SPDR (XLE | A-95) or the 16.6 percent decline of the popular SPDR S&P Oil & Gas Exploration & Production ETF (XOP | A-56).

YTD Performance For PXE, XLE, XOP

At first glance, PXE's outperformance is startling. How could an ETF focused on exploration and production companies be holding up so well amid this year's bloodbath in those stocks? Upon further examination, it becomes clear that the ETF's name is somewhat misleading.

In fact, less than half the fund's portfolio currently comprises E&P stocks. The majority is actually in companies in the refining and marketing business. The top three holdings are all refining stocks: Valero Energy, Phillips 66 and Marathon Petroleum.

Find your next ETF

Reset All