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XLE tops sector SPDRs as oil risk returns

XLE was August's best sector fund, but the gain ran through oilfield services and refiners, not its integrated-major core.

At a glance

  1. ETF Trends attributed the advance to oil and gas stocks as crude rebounded, and Morningstar's equity research team pointed to renewed U.S.-Iran tension after the 60-day deadline for a U.S.-Iran memorandum of understanding expired in mid-August.
  2. SLB climbed 21.2%, Marathon Petroleum added nearly 18%, and Phillips 66 rose 16.5%, while Apache, Valero and Halliburton each gained between 14% and 16%.
  3. Morningstar's equity research team frames the setting as a risk premium rather than a fundamental shift, seeing North American energy as fairly valued and its global energy coverage trading at roughly a 1% premium to fair value after sitting at overvalued levels last quarter.

State Street said XLE gained 7.4% in August, the best of the 11 Select Sector SPDR funds tracking the S&P 500. ETF Trends attributed the advance to oil and gas stocks as crude rebounded, and Morningstar's equity research team pointed to renewed U.S.-Iran tension after the 60-day deadline for a U.S.-Iran memorandum of understanding expired in mid-August. But the leadership inside the fund told a more specific story.

SLB climbed 21.2%, Marathon Petroleum added nearly 18%, and Phillips 66 rose 16.5%, while Apache, Valero and Halliburton each gained between 14% and 16%. Exxon Mobil and Chevron, which together account for nearly 35% of the portfolio, rose just 3.5% and 4.7%, leaving the fund that finished first in August carried by its oilfield-service and refining positions, not by its integrated-major core.

Morningstar's equity research team frames the setting as a risk premium rather than a fundamental shift, seeing North American energy as fairly valued and its global energy coverage trading at roughly a 1% premium to fair value after sitting at overvalued levels last quarter. Questions still linger over who controls the Strait of Hormuz and whether ships must pay tolls to pass through it, and those questions could keep $5 to $10 a barrel of extra risk in oil for some time. If tensions ease and supply returns, Morningstar warns the market could tip into oversupply and pull energy stocks down with it.

XLE offers a cheap, concentrated way to hold that risk, with 21 stocks, a 0.08% expense ratio and $41.4 billion in assets at the end of August, per its factsheet. That setup is a war premium with a cap, the phrase this publication applied to XLEI when State Street's energy covered-call fund was yielding 20%; where XLEI's cap is built into the options it sells, XLE's cap is the supply that comes back if the waterway opens.

Watch whether ships end up paying tolls in the Strait of Hormuz; the answer will set September's direction for XLE.

XLE's August gains: services lead, majors lag

  • SLB21.2%
  • Phillips 6616.5%
  • Apache15.6%
  • Valero Energy14.7%
  • Halliburton14.3%
  • XLE7.4%
  • Chevron4.7%
  • Exxon Mobil3.5%
Source: State Street data via ETF Trends · Aug
Show as table
ItemValue (%)
SLB21.2%
Phillips 6616.5%
Apache15.6%
Valero Energy14.7%
Halliburton14.3%
XLE7.4%
Chevron4.7%
Exxon Mobil3.5%

Reported by the Passive & Indexing desk from ETF Trends. Published . Corrections

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