The Energy sector ranks sixth out of the 11 sectors as detailed in our 2Q19 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Energy sector ranked fifth. It gets our Neutral rating, which is based on an aggregation of ratings of the 176 stocks in the Energy sector as of April 11, 2019. See a recap of our 1Q19 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 16 to 289). This variation creates drastically different investment implications and, therefore, ratings.
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Investors should not buy any Energy ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off.
Our Robo-Analyst technology[1] empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[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.
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Two ETFs (FTXN, BOON) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Three mutual funds (INNNX, RGLIX, APGPX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
FCG is the top-rated Energy ETF (NYSE:XLE) and INRSX is the top-rated Energy mutual fund. Both earn a Neutral rating.
OIH is the worst rated Energy ETF and EESAX is the worst Energy mutual fund. They both earn a Very Unattractive rating.
176 stocks of the 2750+ 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.
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 (NYSE:BLK), 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.
Sources: New Constructs, LLC and company filings
Sources: New Constructs, LLC and company filings
This article originally published on April 11, 2019.
Disclosure: David Trainer, Peter Apockotos, and Kyle Guske receive no compensation to write about any specific stock, sector or theme.