The global economy runs on energy, and petroleum in particular. That’s a fact. And while renewable energy is gaining traction, it cannot make up for the fact that many goods and services are reliant on fossil fuels to be transported.
Trains, planes, and automobiles operate all the time, usually fueled by petroleum-based mechanics. As a diversified investor, having exposure to the energy sector may be important.
The Energy Select Sector SPDR Fund (XLE) provides an easy and affordable* way to add this sector to a diversified portfolio. With more than $40 billion** in assets under management and a low 0.10% total expense ratio, this Exchange Traded Fund (ETF) allows for easy access.
Exxon Mobil (23% of the holdings) and Chevron (20.1%) make up 40%+ of this ETF** and both have sizable renewable operations. Renewable energy materials are becoming cheaper with demand. But at the end of the day, oil and natural gas fuel the global economy and that’s why it should be a consideration for investors.
Beyond Exxon Mobil and Chevron, oil servicer Schlumberger (4.8%), ConocoPhillips (4.5%) and EDG Resources (4.5%) round out the top five holdings for XLE. All represent fossil fuel sources, renewable energy sources, and energy service providers.
Natural Gas is also Important
XLE, the energy select sector fund, offers exposure to the natural gas industry as well. Exxon Mobil, as well as most of the other constituents in XLE’s holdings, have natural gas units of some sort. Oil and natural gas are commonly extracted together.
Natural gas prices ebb and flow more so than oil. Demand is usually more weather related for natural gas than oil. That dynamic is why both oil and natural gas are critical to energy exposure.
XLE is actively traded, with 2022 average daily trading volume of 32 million shares. It allows easy access to a sector every investor should be considering.
Energy Select Sector SPDR Fund (XLE) offers exposure to U.S. energy firms, including companies in the oil, gas and consumable fuels, and energy equipment and services industries.
XLE pulls its stocks from the S&P 500 rather than the total market. The portfolio mainly favors large cap companies. Holdings are weighted by market cap, subject to a capping methodology that ensures no single security exceeds 25% at each quarterly rebalance.
Rather than trying to pick a singular energy company, ETF investing allows for broad exposure to ride out the highs and lows of companies in the sector. But to ignore this sector is missing a potential driver of the global economy that investors can capitalize on.
An energy sector fund like XLE provides ease of access for any investor.
Recognizing how crucial energy is to the world economy should be an investor consideration.
Using an exchange-traded fund like XLE offers equity exposure to the upside to these industries and mitigates the potential downside of what is one the largest traded commodity in the world. Balancing a portfolio with an energy component is essential.
DISCLAIMER: This is a work of research and should not be taken as investment or financial advice. Therefore, Select Sector SPDRs or the publisher is not liable for any decision made based on the publication.
About the Company:
Select Sector SPDR ETFs offer flexibility and customization opportunities. Many investors have similar outlooks, but no two are exactly alike. Select Sector SPDR ETFs let investors select the sectors that best meet their investment goals.
*Ordinary brokerage fees apply
**Assets, Holdings and Weightings as of 12/31/22 subject to change
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. The S&P 500 Index figures do not reflect any fees, expenses or taxes. An investor should consider investment objectives, risks, fees and expenses before investing.
One may not invest directly in an index.
All ETFs are subject to risk, including loss of principal. Sector ETF products are also subject to sector risk and nondiversification risk, which generally will result in greater price fluctuations than the overall market.
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1-866-SECTOR-ETF (732-8673) or visit www.sectorspdrs.com. Read the prospectus carefully before investing.
ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
*Dan Dolan is a Registered Representative of ALPS Portfolio Solutions Distributor, Inc. ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is the distributor for the Select Sector SPDR Trust.
Company Name: Select Sector SPDRs
Contact Person: Dan Dolan
Address:1290 Broadway, Suite 1000
Country: United States