Energy ETFs outperformed major stock indices — MarketWatch
In the United States, funds of energy and commodity companies’ stocks have significantly outperformed most of the listed stock and bond indices since the beginning of the year, amid oil prices rising above $100 per barrel. According to MarketWatch, the Energy Select Sector SPDR ETF, which includes major U.S. energy companies such as ExxonMobil and Chevron, has returned 47% since the beginning of the year.
The SPDR S&P Global Natural Resources ETF, which also invests in mining companies, metal producers and agricultural chemical makers, rose 29%. Meanwhile, the SPDR S&P 500 ETF Trust gained 13%, the Invesco QQQ Trust, which tracks the Nasdaq-100, gained 17%, and the iShares Core U.S. Aggregate Bond ETF declined by about one-third of a percent, including dividends.
Long-term diversification
The MarketWatch author notes that the case for including energy or commodity stocks in a retirement portfolio is based not only on current oil market dynamics. According to his calculations, over more than 25 years, a portfolio consisting of 90% Vanguard Balanced Index Fund and 10% Energy Select Sector SPDR ETF delivered an average annual return of 7.6%.
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For comparison, the Vanguard Balanced Index Fund, which consists of 60% U.S. stocks and 40% bonds, returned an average of 7.1% per year before expenses and without adjusting for inflation. In 2022, XLE returned 64%, while a 10% allocation to this fund in a balanced portfolio, according to the publication’s estimate, reduced total losses from 17% to 9%.
Correlation with other assets
According to Portfolio Visualizer, since XLE was launched in 1999, its monthly correlation with the Vanguard Balanced Index Fund has been 55%. The publication attributes this pattern to the impact of energy and commodity prices: their rise supports the profits of relevant companies but also fuels inflation and increases costs for households and businesses.
MarketWatch also draws attention to differences in fund fees. XLE’s annual expense ratio is 0.08%, while the SPDR S&P North American Natural Resources ETF charges 0.35%, the iShares Global Energy ETF charges 0.37%, and the SPDR S&P Global Natural Resources ETF charges 0.4%.
