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2 Energy ETFs For Entry Into The Oil Bull Market As Prices Take A Breather

Published 2022/03/29, 09:30
CVX
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JPM
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NXT
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IXC
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RDSa
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XOM
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COP
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DVN
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LCO
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CL
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DJUSEN
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SHEL
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TRGP
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TTE
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SM
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OVV
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LNG
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PXI
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The global benchmark for oil prices, Brent oil, went over $130 in early March, hitting a multi-year high. Although it is now trading at around 13% off the recent peak, though still above the $100 level, Wall Street remains worried about the impacts of rising energy costs on the global economy.

West Texas Intermediate Crude, WTI, the US benchmark, has followed a similar trajectory, gaining roughly 37.3% for the year, to trade over the $100 level as well. As a result, the Dow Jones Oil & Gas index returned more than 53% in the past year and 27% year-to-date (YTD).

Dow Jones Oil & Gas Weekly Chart

Volatility in the oil market typically means choppiness for equities, given its implications on the global macroeconomic outlook. According to the International Energy Agency (IEA):

“Surging commodity prices and international sanctions levied against Russia following its invasion of Ukraine are expected to depress global economic growth appreciably… The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock.”

JPMorgan Chase forecasts oil prices could reach $185 per barrel if geopolitical concerns continue in the months ahead.

Today’s article introduces two exchange-traded funds (ETFs) that give access to shares that could see a further boost from rising energy prices worldwide.

1. iShares Global Energy ETF

  • Current price: $36.19
  • 52-week range: $23.08-$37.13
  • Dividend yield: 3.03%
  • Expense ratio: 0.43% per year

The iShares Global Energy ETF (NYSE:IXC) invests in global names that produce and distribute oil and gas. The fund started trading in November 2001.

IXC Weekly Chart

IXC, which tracks the S&P Global 1200 Energy Sector Index, has 47 holdings. With regard to sub-sectors, we see integrated oil & gas (55.45%), oil & gas exploration and production (21.31%), and oil & gas storage and transportation (10.84%), among others.

Over 55% of the names come from the US. Next (LON:NXT) in line are companies from the UK, Canada, France, Brazil, Italy, and others. The top 10 stocks in the portfolio account for close to 60% of $2.38 billion in net assets. In other words, the fund is top-heavy.

Among the leadings stocks on the roster are Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Shell (NYSE:SHEL), ConocoPhillips (NYSE:COP), and TotalEnergies (NYSE:TTE).

The ETF is up to 31.5% YTD and 43.5% in the past 52 weeks. IXC saw a multi-year high in late March.

P/E and P/B ratios stand at 14.45x and 1.93x. We like the international diversity of the fund. In addition, energy names typically do well during times of high inflation. Coupled with the ongoing war in Ukraine, we expect shares of most companies in the fund to stay strong.

2. Invesco DWA Energy Momentum ETF

  • Current Price: $42.99
  • 52-week range: $21.55-$44.53
  • Dividend Yield: 0.63%
  • Expense ratio: 0.60% per year

Our second fund, the Invesco DWA Energy Momentum ETF (NASDAQ:PXI), invests in stocks with relative strength. This price momentum indicator relies on a stock’s performance over time compared to a benchmark or universe of stocks. The fund started trading in October 2006.

PXI Weekly Chart

PXI currently has 46 holdings, and its benchmark index is the Dorsey Wright Energy Technical Leaders Index. The fund is rebalanced quarterly. Its top 10 portfolio names account for close to 40% of $247.8 million in net assets.

Stocks from the oil, gas & consumable fuels segment lead the portfolio with 88.97%. Then come energy equipment & services (7.37%), and metal & mining (3.52%). All names are based in the US.

Leading holdings in PXI include Ovintiv (NYSE:OVV), Cheniere Energy (NYSE:LNG), SM Energy (NYSE:SM), Devon Energy (NYSE:DVN), and Targa Resources (NYSE:TRGP).

The fund has returned almost 68.3% in the past 12 months and 40.4% since the start of the year. Like IXC, it also saw a multi-year high in recent days.

Forward P/E and P/B ratios are 6.43x and 2.14x. Readers who expect energy stock and ETFs to remain bright spots in the current environment should research PXI further.

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