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Has Your Energy Portfolio Captured Oil’s Gain?

PART:
1 2 3 4 5
Part 2
Has Your Energy Portfolio Captured Oil’s Gain? PART 2 OF 5

Is Oil’s Rise Disappointing Wall Street?

Equity indexes

On November 2–9, 2017, the S&P 400 Mid-Cap Index (IVOO) had the highest correlation of 50.7% with US crude oil active futures. However, it fell 0.3% compared to a 4.8% rise in US crude oil active futures during this period.

Is Oil’s Rise Disappointing Wall Street?

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The S&P 500 Index and the Dow Jones Industrial Average Index (DIA) had correlations of 31.1% and 17.4% with US crude oil active futures. We discussed the price performance of these two equity indexes in the previous part. It looks like these equity indexes could have missed the rise in oil prices.

Similar trends have been observed in European equity indexes like the FTSE 100 Index (EWU) and the CAC 40 Index (EWQ). These equity indexes fell 0.9% and 1.9% in the trailing week. During the same period, Brent crude oil active futures rose 5.5%. The correlations of the FTSE 100 Index and the CAC 40 Index with Brent crude oil active futures were 45.1% and 36.8% during this period.

Since oil is a growth-driven asset, the gain in oil prices could have a positive impact on these equity indexes in the long term.

For these equity indexes, natural gas prices might not be important during this short-term period because natural gas–weighted stocks could follow oil more compared to natural gas prices.

Exposure to the energy sector

For the FTSE 100 Index and the CAC 40 Index, the allocation to the energy sector is over 10%. The S&P 400 Mid-Cap Index had an allocation of 3%–4%. The S&P 500 Index’s exposure to the energy sector is 5%–6%. The Dow Jones Industrial Average Index has an ~9% allocation to energy stocks.

SPDR ETFs

On November 2–9, 2017, the Energy Select Sector SPDR ETF (XLE) rose 2.3% and was the second-largest gainer on our list of sector-based SPDR ETFs. The Real Estate Select Sector SPDR (XLRE) rose 3.2% and gained the most on our list during this period. In the trailing week, the Financial Select Sector SPDR ETF (XLF) fell 2.7% and was the largest loser.

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