12 Apr

Energy ETFs Underperformed Oil’s Gains

WRITTEN BY Rabindra Samanta

Correlation with US crude oil

On April 4–11, major energy ETFs had the following correlations with US crude oil active futures:

  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 77.8%
  • the VanEck Vectors Oil Services ETF (OIH): 74.9%
  • the Energy Select Sector SPDR ETF (XLE): 61.5%
  • the Alerian MLP ETF (AMLP): -10.6%

Energy ETFs Underperformed Oil’s Gains

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US crude oil active futures rose 2.4% in the trailing week. These ETFs have returned 2.3%, 2.3%, 1.4%, and -0.4%, respectively. These energy ETFs’ returns are in the same order as their descending order of correlations with oil. None of the ETFs have outperformed US crude oil. Based on the correlations, AMLP might have ignored oil prices. AMLP was the only energy ETF that closed in the red.

Natural gas

In the trailing week, OIH, XOP, XLE, and AMLP had correlations with natural gas active futures of 60.6%, 60.3%, 46.1%, and -10.6%, respectively. Natural gas active futures rose 0.8%. Natural gas recovered from a one-month low this week, which supported the upside in these energy ETFs based on the correlations. On April 4, natural gas active futures settled at the lowest closing level since February 20.

Equity markets

Energy ETFs had the following correlations with the S&P 500 Index in the trailing week:

  • XOP: 94.6%
  • OIH: 83.7%
  • XLE: 80.2%
  • AMLP: -15.2%

The S&P 500 Index (SPY) rose 0.3% during this period. Given these correlations, the broader market might have capped the upside in XOP, OIH, and XLE. Despite positive correlations, these ETFs underperformed oil prices. Usually, the sentiments in the broader market are more important to energy ETFs than oil prices.

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