Energy Sector 2Q18: Best And Worst
David Trainer | May 09, 2018 09:39AM ET
The Energy sector ranks last out of the 11 sectors as detailed in our 1Q18 Sector Ratings here .
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 22 to 334). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Energy sector should buy one of the Attractive-or-better rated ETFs from Figure 1.
Our [2] We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.
Figure 1: ETFs with the Best & Worst Ratings
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Etho Climate Leadership U.S. ETF (NYSE:ETHO), Tortoise Water Fund (TBLU), and PowerShares WilderHill Progressive Energy Portfolio (NYSE:PUW) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
PowerShares Water Resources Portfolio (NASDAQ:PHO) is the top-rated Energy ETF (NYSE:XLE). There are no mutual funds that receive a Neutral-or-better rating. PHO earns a Very Attractive rating.
First Trust Energy AlphaDEX Fund (NYSE:FXN) is the worst rated Energy ETF and Rydex Energy Services Fund (RYESX) is the worst rated Energy mutual fund. Both earn a Very Unattractive rating.
184 stocks of the 3000+ we cover are classified as Energy stocks.
The Danger Within
Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.
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PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND
Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.
Figures 3 and 4 show the rating landscape of all Energy ETFs and mutual funds.
Figure 3: Separating the Best ETFs From the Worst ETFs
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds from the Worst Mutual Funds
Sources: New Constructs, LLC and company filings
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.
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