On August 21st, we wrote a post titled "Don't Expect A Turnaround In Your Favorite Energy ETF Anytime Soon" that showed how the top heavy Energy Select Sector SPDR ETF (NYSEARCA:XLE) was most likely not going to rebound anytime. The reason we believed this was because three out of the five top holdings, which accounted for over 44% of the ETF, were in a significant downtrend. Since that post, we have had major relative outperformance by the two largest equities in XLE, Exxon Mobile (NYSE:XOM) and Chevron (NYSE:CVX). XOM has outperformed the MSCI ACWI by 15% and CVX has outperformed by over 22%. These two stocks have done so well that they now account for 30.4% of XLE compared to 27.8% on 8/21. For XLE owners, major outperformance by these two stocks is pretty much a best case scenario, so how has XLE performed since 8/21? Overall, we would describe the performance as "meh". XLE is 4.2% higher since 8/21 and has outperformed by the MSCI ACWI by 2.5%. However, investors would have been much better off investing in something like the SPDR S&P Semiconductor ETF (NYSEARCA:XSD) which has gained 17% since 8/21 instead of going back to the energy well one more time hoping for a major bounce. And the worst news for XLE investors is even though the two largest stocks have been on an relative performance tear recently, neither one has broken out of the downtrend that it has been in over the last four years. If these stocks begin to underperform once again, they will surely pull down XLE price since they account for a larger share than they did just a couple months ago.
XOM PnF chart as of 8/20 closing price
XOM PnF chart as of 11/10 closing price
CVX PnF chart as of 8/20 closing price
CVX PnF chart as of 11/10 closing price
The original posting of this article can be found here.
All data was created by the author and sourced from Gavekal Capital and FactSet.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.