Picking up from where they left off from 2021, energy sector-related exchange traded funds continued to lead the charge into the new year.
Among the best-performing non-leveraged ETFs so far in 2022, the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) advanced 18.4%, the VanEck Vectors Oil Service ETF (NYSEArca: OIH) gained 18.8%, and the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) increased 17.8%. Meanwhile, the broader Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, was up 14.4%, and the S&P 500 Index fell 0.8%.
Shares of U.S. energy companies have surged in the first two weeks of the new year as a shift to the value style and assets that benefit from the highest inflation in four decades helped the sector. The gains in 2022 come after a big year for the S&P 500 Energy sector, which surged almost 48% in 2021.
Bolstering the energy sector, crude oil prices have rallied over the past month, with Brent crude oil futures up 23% since early December and nearing their highest level since late 2018, Reuters reports. The higher energy prices have also been a key contributing factor over the past year to purging up inflation.
“If oil is on the rise and natgas is on the rise, it is going to mean an increase in earnings for those companies that are involved in the energy sector,” Robert Pavlik, senior portfolio manager at Dakota Wealth Management, told Reuters, adding that he is overweight on the energy sector in his portfolios, owning shares of Chevron and Pioneer Natural Resources.
S&P 500 energy companies are projected to enjoy an increase in revenue by 72.7% for the fourth quarter year-over-year, according to Refinitiv IBES data.
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“The group has a pretty good record of outperforming the market in inflationary periods and we are in an inflationary period,” Peter Tuz, president of Chase Investment Counsel Corp, told Reuters.
Furthermore, some attributed the recent momentum in the energy sector to the recent selling in mega-cap technology stocks as many shifted away from growth stocks to value.
“When you see all the selling that is going on in the megacap tech stocks, if even a fraction of that money finds its way into the energy sector, the stocks ought to do well,” Tuz added.
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