As has been widely reported, the energy sector is back to number one among the S&P 500 sectors, and many exchange-traded funds reflect this high status.
The Invesco Dynamic Energy Exploration and Production ETF (PXE) is part of that group, performing, well, dynamically this year. Thanks to the resurgence of oil in 2021, PXE has almost doubled. While this may imply that the rise from here is limited, the opposite may be true as some Wall Street experts are betting oil prices could soon eclipse $ 100 a barrel or even go higher than that.
What is interesting about the state of the old guard energy industry today is the divide between oil prices and the respective price actions of the energy sector. For example, the prices of Brent crude, the global benchmark, have returned and exceeded their pre-coronavirus pandemic highs. However, the S&P 500 energy index has yet to gain a few percentage points to regain its pre-pandemic highs. As energy stocks continue to return to 2019 levels, PXE should benefit.
“We expect the industry to reassess its rating as companies post strong results, raise their forecasts and reiterate their focus on return on shareholder capital rather than unprofitable market share gains,” said Dubravko Lakos-Bujas, strategist of JPMorgan in a note to customers.
PXE, which tracks the Dynamic Energy Exploration & Production Intellidex Index, is heavily influenced by the upward trend in oil prices as many of its 30 holdings are exploration and production companies – a segment of the oil industry. energy that has historically closely correlated with oil prices in any direction. Additionally, many PXE member companies are also natural gas producers, and this is a relevant point as “natty” is one of the top performing commodities this year.
These aren’t the only reasons PXE might offer more benefits, and investors don’t have to pay to get involved in the fund.
“In a world where most assets have been largely revalued due to falling interest rates and liquidity, energy still offers the potential for non-linear earnings growth for several years at an attractive valuation,” adds Lakos- Bujas.
PXE separates from the ETF energy pack weighted according to the heading focusing on the factors such as price dynamics, profit dynamics, quality, management action and value. This methodology puts size on the side of PXE. The average market value of its holdings is less than $ 20 billion, which means it is not constrained by certain large-cap oil stocks that are less sensitive to crude prices.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.