NEW YORK (ETF Expert) -- Energy exchange-traded funds outperformed the overwhelming majority of competing sector investments in the previous bull market from October 2002 to October 2007.
In the early part of the run, the war in Iraq boosted the demand for shares. In the later stages of the rally, emerging economic growth fueled speculative excesses in both the price of oil as well as desire for ownership in exploration and/or oil services companies.
The last three years, however, have been remarkably unkind to energy stocks. Whereas the S&P 500 has rocketed skyward, the SPDR Select Sector Energy Fund (XLE) annualized at approximately 5.6%. In contrast, SPDR Select Sector Consumer Discretionary (XLY) and SPDR Select Sector Health Care (XLV) logged three-year annualized gains of 20.2% and 23.2%, respectively.
In hindsight, one can tether the damage to the energy patch to woes across the emerging economy board. Both China and Brazil have seen significant declines in their domestic outputs. India has battled severe inflation. And Russia? Whether it is a military engagement with Ukraine or a dependence on its natural resources exports, investors have historically shown an aversion to paying much for shares in Russian corporations.
It follows that a three-year bearish period for emerging markets -- a period where iShares Emerging Markets (EEM) has floundered -- corresponds to the relative weakness in U.S. energy stock investing.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV