By far the largest energy ETF is the Energy Select Sector SPDR (XLE). It’s a market cap weighted energy ETF that tracks the energy sector in the S&P 500. Since its a market cap weighted ETF, it is very top heavy as it is dominated by Exxon Mobil and Chevron. As of yesterday, Exxon Mobil account for 16.15% and Chevron accounts for 11.68% of XLE. Overall, the top five holdings account account for 44.2% of the entire ETF. And unfortunately for XLE investors, three of the largest holdings are in significant downtrends and zero of the the top five stocks have been outperforming the the MSCI All-Country World Index.
Let’s start with Exxon Mobil which as we said is 16.15% of XLE. Exxon has actually been a fairly low volatile stock relative to the market over the last four years. However, it is down over 25% over the past year and seems to be stuck in a signification downtrend relative to the overall market.
The same story goes for Chevron (11.68% of XLE). The only difference is that the pain felt by owning Chevron has been more severe. Chevron is down nearly 38% over the past year and will not be in a sustained period of outperformance for a long time. .
With over a quarter of XLE in significant down trends, you can pretty much put a nail in the coffin for performance for a while. However, let’s take a quick look at the next three largest stocks in XLE.
Schlumberger accounts for 8.08% of XLE. Schlumberger is down more than Exxon Mobil over the past year as it has fallen by 27.7%. However, its relative performance point and figure chart is at least still holding at historic support. If support gives out, Schlumberger will be stuck in a significant down trend as well.
The fourth largest holding in XLE is Kinder Morgan (4.35%). Kinder Morgan is down 21.4% over the past year. Kinder Morgan is also holding at historic support and is at a bit of a crossroads. It looked as if it was forming a base in 2014 before the more recent downturn. The question investors face holding this stock is whether or not Kinder Morgan will resume its basing formation or is support about to give way to a significant downtrend? Time will tell.
Lastly, we have EOG Resources. It accounts for only 3.94% of XLE and fortunately for XLE investors, it doesn’t account for more. EOG has just put in a multi-year top and even though it has outperformed a bit recently, it looks to be squarely in a down trend. EOG could easily underperform by 25-35% before it reaches a historical support level. EOG is down 28.5% over the past year.
