U.S. Energy Breaks 16-Year High!
E&R XLE U.S. Energy has shattered a 16-year high, delivering an impressive 35% return since January 2023. This performance outpaces the XLE Energy SPDR by a remarkable 24%, even as the latter has seen its assets under management decline from $39 billion to $35 billion since our last coverage in October 2023. The outflow of smart money from such a critical asset class raises questions: does the smart money foresee stagnant oil prices, or does it doubt the ability of oil stocks to break through their prolonged 16-year stagnation? Where disbelief in a new trend exists, capital outflows tend to follow.
This divergence between E&R XLE and market capitalization (MCAP) driven benchmarks and ETFs is not new. E&R’s momentum isn’t dictated by just two major energy stocks but rather by the broader basket of energy stocks. In contrast, the MCAP weighted methodology disproportionately emphasizes Chevron and Exxon, skewing its ability to capture broader trends in the energy sector. The question remains: will E&R prove to be the real bellwether? What’s clear for now is that E&R is delivering superior returns for investors compared to its skewed peer.
The overemphasis on a few large-cap components distorts what should ideally be a leading indicator. MCAP weighted benchmarks are not only biased at the stock level but also at the commodity level, inflating and distorting trends. Despite textbook claims of industry benchmarks being “leading,” the reality is they reflect size bias rather than predictive power.
E&R is poised to persist in this outperformance. When it does, it will not only generate superior returns but also confirm its foresight in identifying market trends well before oil prices and oil stocks break out. We’ll keep you updated. Until then, enjoy your U.S. energy exposure. E&R XLE will be soon available for purchase for Romanian Investors with our partner TradeVille.
For more information, you can access the factsheet here and download the open code base here.
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