Exposure to the hard-hit U.S. energy sector, at a low cost

For investors bold enough to venture into this bruised market segment, this ETF is one of the best bargains around.

Robert Goldsborough 23 February, 2016 | 6:00PM

 Energy Select Sector SPDR (XLE) offers broad, inexpensive exposure to the U.S. energy sector. This exchange-traded fund invests in the 40 oil and gas and energy-services companies found in the S&P 500 and weights its holdings by market capitalization. This includes integrated oil and gas producers, firms that engage in oil and gas exploration and production, companies providing oil and gas equipment and services, and those in the refining and marketing segment of the value chain.

Because of this ETF's industry concentration, it would be most suitable as a satellite holding in a diversified portfolio. Sector SPDR ETFs are among the cheapest and most-liquid sector funds available. Its dirt-cheap 0.14% management-expense ratio is low even by ETF standards.

The top-heavy portfolio is dominated by a pair of heavyweights: vertically integrated supermajors  Exxon Mobil (XOM) and  Chevron (CVX), which together make up more than 35% of XLE's assets. While these two firms represent a large chunk of assets, they operate in a diverse set of businesses across the energy complex.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BP PLC ADR35.36 USD-1.72
Canadian Natural Resources Ltd39.81 CAD-1.58
Chevron Corp109.01 USD-0.73
Exxon Mobil Corp59.13 USD-1.22
Halliburton Co21.26 USD-3.14
Royal Dutch Shell PLC ADR Class A49.17 USD-0.91
Schlumberger Ltd33.39 USD-1.30
Suncor Energy Inc40.18 CAD-0.69

About Author

Robert Goldsborough

Robert Goldsborough  Robert Goldsborough is an analyst covering equity strategies on Morningstar’s manager research team.