Among our list of the 10 Best ETFs for 2018, Energy Select Sector SPDR has the distinction of having the widest range of ranking on the list in the first half of the year, in addition to having great momentum going into the second half.
XLE had an impressive gain of nearly 16% for Q2 2018 and is up 6% for the year. That compares to 4.9% and 2.5%, respectively, for the S&P 500 index, as measured by SPDR S&P 500 ETF (NYSE:SPY). Already, from this perspective, XLE is accomplishing our ultimate performance objective, which is to outpace the major market indices.
As Q2 2018 was winding to a close, the Organization of Petroleum Exporting Countries (OPEC), announced that its members would increase output by 600,000 barrels per day starting in July, which was much less than investors expected.
Therefore, lower-than-expected supply pushed the price for crude higher, which gave support to top holdings in XLE, which include Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Schlumberger (NYSE:SLB).
Best ETFs 2018: Second-Half Outlook for XLE
Looking forward, some of the factors that could continue to support higher prices for XLE include:
– Momentum: Oil prices are already at their highest since 2014.
– High Demand, Lower Supply: A healthy economy and a happy consumer could combine for stronger demand during summer vacation season. Another factor supporting oil prices in Q2 was tighter sanctions on Iran, as the U.S. demanded that all countries halt imports of Iranian crude.
– Technicals: From a technical perspective, the price for XLE is above the rising 40-week moving average line. A close above $80 could turn into a significant upside breakout and might lead to gains up to the $95 range.
While ending the year in the top spot of our picks for Best ETFs for 2018 would be rewarding in itself, it’s wise to reiterate our primary goal in selecting sector funds. At a minimum, we want to have an average rate of return that outpaces inflation. At the most, we would like to outperform the broader market, as measured by the S&P 500.
These are long-term goals, and one calendar year does not reflect success on these goals. With that said, I’m happy with the performance of XLE in the first half of 2018 and will look forward to watching it in the second half.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds XLE in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.