VDE: Outperformance Has Much Further To Go

Feb. 08, 2022 3:41 AM ETVanguard Energy ETF (VDE)XLE1 Comment
Stuart Allsopp profile picture
Stuart Allsopp
4.01K Followers

Summary

  • In total return terms the Vanguard Energy ETF has gained 234% since its 2020 lows, hugely outperforming the S&P500.
  • Despite such strong returns, the current oil price suggests the VDE should be roughly double its current share of the market based on correlations over the past two decades.
  • The VDE's underlying MSCI USA Energy index trades roughly 40% below the S&P500 on a forward P/E basis, and more than 50% below it in terms of price-to-free cash flow.
  • While a sharp decline in oil prices and/or the S&P500 pose risks to the VDE, energy stocks outperformed during the 2000-2002 equity bear market even as crude oil prices fell amid the economic slowdown.

Rise in gasoline prices concept with double exposure of digital screen with financial chart graphs and oil pumps on a field.

peshkov/iStock via Getty Images

Oil and Gas stocks have performed extremely well over the past few years since the generational buying opportunity that occurred at the start of the pandemic. In total return terms the Vanguard Energy ETF (

VDE chart

VDE ETF (Bloomberg)

VDE Vs SPX chart

VDE Vs SPX (Bloomberg)

US energy sector

Bloomberg, Author's calculations

WTI, SPX, and MSCI Energy/SPX

WTI, SPX, and MSCI Energy/SPX (Bloomberg)

This article was written by

Stuart Allsopp profile picture
4.01K Followers
I am a full-time investor and owner of Icon Economics - a macro research company focussed on providing contrarian investment ideas across FX, Equities, and Fixed Income based on Austrian economic theory. Formerly Head of Financial Markets at Fitch Solutions, I have 15 years of experience investing and analysing Asian and Global markets.

Disclosure: I/we have a beneficial long position in the shares of VDE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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