When Performance Matters, XLE Gets Beat Hands Down

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Includes: BP, CHK, DVN, XLE
by: Scott Sacknoff

OOK (NYSE: OOK) was launched as a means for investors in the State of Oklahoma to be able to invest in the local firms that chose to make the state its home. Although set up to capture that "small town" civic pride and give local pension funds an easy means to invest in local companies, the small-cap energy focus of the companies within the state is providing investors with an alternative to the XLE, with better returns and less volatility.

The ETF is comprised of 30 firms, more than 80% of which are involved with energy. It is a diverse mix of companies involved with oil, natural gas, and coal and across a spectrum of drilling and exploration, oil and natural gas supply, midstream piping, and services. Among its largest holdings are Devon Energy (NYSE: DVN) and Chesapeake Energy (NYSE: CHK) however the top 10 represents less than 50% of the fund.

This diversification has served it well following the British Petroleum (NYSE: BP) disaster in the Gulf. Whereas XLE declined by 12.86% in the first half of the year, OOK dropped just 1.75%. Both funds lost nearly 40% of their value during the collapse of energy prices in 2008 but OOK rebounded in 2009, outperforming the XLE by a whopping 30%. And since 2000, OOK has outperformed the XLE in 8 of the 11 years and only once in the past decade did it substantially underperform.

A lot of investors weren't sure of what to do with state-focused funds when they were launched last year but with returns like this, diversification across energy sectors, and exposure to natural gas, when performance matters, XLE gets beat hands-down.

Price Return
SPADE Oklahoma Index XLE Alpha (bps)
2000 47.77% 22.53% 2524
2001 [11.48%] [19.55%] 807
2002 [8.85%] [16.37%] 752
2003 29.98% 22.38% 760
2004 30.01% 31.83% [182]
2005 34.64% 38.52% [388]
2006 19.48% 15.54% 394
2007 17.44% 35/34% [1790]
2008 [39.43%] [39.80%] 37
2009 49.16% 19.34% 2982
YTD [1.75%] [12.86%] 1111
Click to enlarge

Disclosure: The SPADE Oklahoma Index is the underlying index to the OOK Oklahoma ETF.