Seeking Alpha

Energy Sector Funds Suffer Second-Worst Weekly Net Outflows Ever

Includes: XLE, XOP
by: Pat Keon CFA
Pat Keon CFA
Research analyst, portfolio strategy, bonds, mutual fund analyst

Energy sector funds suffered weekly net outflows of $1.3 billion.

The lion's share of the net outflows belonged to two ETF products.

The economic slowdown in China has negatively impacted energy sector funds.

Energy sector funds saw almost $1.3 billion leave their coffers for the fund-flows trading week ended Wednesday, January 16. This represents the group's second-largest weekly net outflow in history (Lipper began tracking this data in 1992), trailing only the -$2.5 billion net negative flows for the fund-flows week ended October 1, 2014. Energy sector funds have been trending down since the start of Q4 2018 and, since then, have recorded net outflows in eleven of fifteen weeks for a total of -$2.3 billion in net negative flows.

One of the main drags on the energy sector since early Q4 has been the uncertainty over the U.S./China trade dispute and its potential impact on what appears to be a slowing economy in China, one of the world's largest importers of crude. The impetus for this week's net outflows appears to have been China's release of worse than expected trade data for December. It was speculated this data represented the first full impact from the trade impasse. The following day, China announced plans to launch programs to stabilize its slowing economy. Oil prices took strength from this announcement, as U.S. crude appreciated 3.17% after falling 1.90% on the previous day's news.

Taking a more granular look at the data shows the overwhelming majority of this week's net outflows were attributable to the two largest energy sector ETF products, as SPDR S&P Oil & Gas Exploration ETF (NYSEARCA:XOP) and Energy Select Sector SPDR Fund (NYSEARCA:XLE) saw $641 million and $577 million leave their coffers, respectively. For 2018, XLE had net negative flows of $1.1 billion and XOP took in $313 million in net new money.

Energy Sector Funds (including both mutual funds and ETFs) Weekly Net Flows ($Bil), October 10, 2018, through January 16, 2019

Source: Lipper

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