Drilling Into the Energy ETF, and Retail Weak As Wal-Mart Hits New Low (XLE, IGE, IYE)

Last week, we saw mostly muted moves as materials led the financials, telecom, internet and Dow Jones Industrial Average lower, writes Nick Perry, who covers ETFs for Schaeffer's Investment Research, while some of the interest-rate-sensitive groups managed small gains. This week, I think everyone (at least everyone who drives a car) is already aware of where the action was:

Oil-related stocks and energy concerns were the focus of the action as these groups spiked higher in the aftermath of Hurricane Katrina. The Oil Service HOLDRS Trust (OIH), iShares Energy (IYE), iShares Natural Resource (IGE), and Energy Sector SPDR (XLE) funds all gained six percent as crude spiked higher. Biotech also had a strong week, helped in part by Thursday's 17-percent gain in Chiron (CHIR: sentiment, chart, options), which rose on buyout news.

Utilities built on last week's gains, as the iShares Utilities (IDU), Utilities Sector SPDR (XLU), and Utilities HOLDRS Trust (UTH) all made new annual highs. Small caps also made a push higher, despite the rise in energy. In fact, looking over the chart as a whole, you can see that very few groups lost ground this week in the face of the turmoil. Of the few areas to retreat, retail took the biggest hit. Two weeks ago, I we saw some weakness in the RTH and I mentioned Wal-Mart Stores (WMT), as concern to watch. WMT hit a new annual low this week so I still think that is a worry for the group.

For a longer-term perspective, the list below shows the year-to-date returns for the ETFs listed above.

Year-to-Date Returns for This Week's Top Performing Sector Exchange-Traded Funds:

Energy Sector SPDR (XLE) +41.0%
iShares Natural Resource (IGE) +32.8%
iShares Energy (IYE) +36.0%
Oil Service HOLDRS (OIH) +40.1%
Biotech HOLDRS (BBH) +28.7%
Utilities HOLDRS (UTH) +20.7%
iShares Utilities (IDU) +17.6%
Utilities Sector SPDR (XLU) +18.6%
iShares Nasdaq Biotech (IBB) +1.6%
iShares SmallCap 600 (IJR) +5.8%

Year-to-Date Returns for This Week's Bottom Performing Sector Exchange Traded Funds:

iShares Treas Bond (TLT) +7.2%
DIAMONDS Trust (DIA) -2.6%
Consumer Staples SPDR (XLP) +0.1%
Industrial Sector SPDR (XLI) -4.2%
Internet HOLDRS (HHH) -16.9%
Semiconductor HOLDRS (SMH) +9.2%
iShares Transport Average (IYT) -4.0%
iShares Consumer Services (IYC) -4.0%
Consumer Discretionary (XLY) -6.3%
Retail HOLDRS (RTH) -4.4%

Last week I noted that the top performing groups for the week were ones that had shown generally positive year-to-date returns while the bottom performing groups were the ones that had shown mostly negative year-to-date returns. While maybe not as consistent as last week we see a similar pattern. As I have discussed ad nauseam throughout the past few months, the oil/energy/utilities groups have been leaders this year and this week's rally just adds to those gains.

Given the all-around strength in the energy ETFs, I thought it might be interesting to drill down on the XLE (no pun intended) to see how the underlying stocks were moving. I took the component stocks and sorted them based on their returns over the last week.

Valero Energy Corp. (VLO) +21.8%
Sunoco Inc. (SUN) +19.5%
Burlington Resources Inc. (BR) +12.3%
Marathon Oil Corp. (MRO) +10.3%
Halliburton Co. (HAL) +9.3%
National Oilwell Varco Inc. (NOV) +9.1%
CONOCOPHILLIPS (COP) +8.8%
EOG Resources Inc. (EOG) +8.7%
XTO Energy Inc. (XTO) +8.5%
Occidental Petroleum Corp. (OXY) +8.3%
Amerada Hess Corp. (AHC) +7.9%
Rowan Cos. Inc. (RDC) +7.7%
Williams Cos. (WMB) +6.5%
BJ Services Co. (BJS) +6.4%
Weatherford International Ltd. (WFT) +6.0%
Devon Energy Corp. (DVN) +5.8%
Nabors Industries Ltd. (NBR) +5.5%
Anadarko Petroleum Corp. (APC) +5.1%
Chevron Corp. (CVX) +5.1%
Baker Hughes Inc. (BHI) +5.0%
Transocean Inc. (RIG) +4.6%
Kinder Morgan Inc. (KMI) +4.5%
Exxon Mobil Corp. (XOM) +4.1%
Schlumberger Ltd. (SLB) +3.2%
El Paso Corp. (EP) +3.2%
Noble Corp. (NE) +2.8%
Kerr-McGee Corp. (KMG) +2.8%
Murphy Oil Corp. (MUR) +2.0%
Apache Corp. (APA) +0.7%

As you can see, the gains have not been evenly distributed. Many of the stocks show a gain that is in line with what the XLE shows, but stocks like Valero (VLO) and Apache (APA) show some very large discrepancies. This highlights one of the advantages of ETFs. Those who want exposure to a sector but aren't sure of which stocks to pick can just buy the fund and get exposure to a number of names. Yes, you won't get the absolute best performance of a stock like Valero but you also don't have worry about picking the Apaches...

Nick Perry ([e-mail])
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