ETFs exposed to energy stocks have outperformed the broader equity ETF universe in April, with several funds notching up returns in excess of 9% for the month.
Energy-focused ETFs led the field in April.
The recent bout of strong performance comes off the back of rising oil prices following supply cuts by the Organization of Petroleum Exporting Countries (OPEC) and other oil producers including Russia.
The price of Brent crude oil rose from around $68 to $74 a barrel over April—a jump of roughly 7%.
The spike in prices has provided a tailwind to ETFs exposed to the sector.
Two ETFs which track the MSCI World Energy Index—the Lyxor MSCI World Energy TR UCITS ETF (NRGW LN) and Xtrackers MSCI World Energy Index UCITS ETF (XDW0 LN)—have returned 10.0% and 9.3% over April respectively.
The underlying index is composed of developed market companies which are part of the energy sector, with Exxon Mobil (13.2%), Royal Dutch Shell (11.2%), Chevron (9.0%), Total (5.7%) and BP (5.5%) currently making up its largest holdings. Over half of the index’s geographic exposure comes from the US (56.3%), with the UK (16.6%), Canada (11.2%) and France (5.7%) also having significant weights.
Despite the strong monthly performance, the return of the index has been flat over the past five years, considerably underperforming the parent’s annualised return of MSCI World Index’s 8.5%.
XDW0 is the largest of the two ETFs with current assets under management of $473 million compared to NRGW’s $63m in AUM. Both funds have the same total expense ratios (TER) of 0.30%.
One month return for the Xtrackers MSCI World Energy Index UCITS ETF.
The last month saw positive net inflows of $25m into XDW0, although the strongest months of inflows over the last year occurred in January 2018 ($91m) and May 2017 ($101m):
Monthly net new asset flows for XDW0 in dollars.
Investors seeking more targeted geographic exposures to the energy sector could opt for the Xtrackers Stoxx Europe 600 Oil & Gas UCITS ETF (XSER LN) or the SPDR S&P US Energy Select Sector UCITS ETF (SXLE LN). These funds have also had stellar performance over April, returning 12.6% and 9.4% respectively.
XSER tracks the STOXX Europe 600 Oil & Gas Index, which invests in European companies that generate revenues from the oil and gas sector. The index has high stock specific risk, with around 70% of its holdings attributed to just four companies: Total (29.6%), BP 15.3%, Royal Dutch Shell (15.0%) and Eni (10.1%).
The ETF has a TER of 0.30% and currently has AUM of $56m.
BlackRock’s iShares STOXX Europe 600 Oil & Gas UCITS ETF is another option to track the STOXX index. The fund has just over $1billion in AUM but does not trade on London Stock Exchange—it trades on Xetra (under ticker (SXEPEX GY) and SIX Swiss Exchange (under ticker SXEPEX SW).
The iShares ETF has a slightly higher TER of 0.46%.
SXLE tracks the S&P Energy Select Sector Index, which holds US companies in the energy sector. Just under 40% of its weight is currently assigned to Exxon and Chevron, with around 22% and 17% respectively.
The ETF has a relatively low TER of 0.15% and currently holds $362m in AUM.
The turnaround of investor sentiment towards oil—and to companies that generate revenues from it—has been slow and steady since January 2016, when the price of Brent Crude sat just under $30 a barrel.