The uncertainty about the U.S.-China trade tension and the future of global oil demand for the rest of the year have resulted in many investors staying away from energy exchange traded funds (EFTs) in recent months.
Those investors willing to pour money into energy ETFs would need
“somewhat of a steel stomach to step back into this marketplace,” Matthew
Bartolini, managing director and head of SPDR Americas Research at State Street
Global Advisors, told CNBC on Wednesday.
According to the expert, the whole energy sector is weak right now
and the earnings reports of many oil and gas companies for the first quarter
didn’t shine, and only a handful of firms beat expectations.
Volatile crude prices and weak refining margins led to lower earnings at all five oil
supermajors in the first quarter of 2019, suggesting that Big Oil shouldn’t
stay complacent several quarters after the industry emerged from one of the
worst downturns in a generation.
Bartolini said that drilling companies may be a better bet than
oilfield services companies, even though drillers are more exposed to the spot
price of oil, so a fund like SPDR S&P Oil & Gas Exploration &
Production ETF (XOP) could have a “negative skew.”
“But, again, if we get a reprieve from these trade tensions, that
higher sensitivity could be a benefit to those investors willing to take on
that higher volatility,” Bartolini told CNBC.
The SPDR S&P Oil & Gas Exploration & Production ETF
has dropped 14.6
percent in
the past month and 10 percent in the last three months, although year to date
it’s up 0.93 percent. Over the past year, the fund’s performance is a
34-percent decline.
According to CFRA’s senior
director of ETF and mutual fund research, Todd Rosenbluth, the midstream Global
X MLP & Energy Infrastructure ETF could be a good bet right now, as well as
funds featuring large-cap companies like Exxon and Chevron with stable income
and strong fundamentals such as Energy Select Sector SPDR Fund and Vanguard
Energy Index Fund ETF Shares.