These are Bank of America’s favorite ETFs to play another energy rally
The bull market in energy stocks still has room, and there are cheap exchange-traded funds on the market to help investors keep pace, according to Bank of America. Energy underperformed the broader market in January, with the Energy Select Sector SPDR (XLE) fund returning only 2.8%. February got off to an even worse start, with the fund falling almost 2% on Wednesday. This disappointing month followed a great year for energy stocks in 2022. The difficulties could be due to energy prices, which have fallen sharply since their peak last summer, and the broader reversal in stock market leadership in recent years. weeks. However, Jared Woodard, Bank of America’s investment and ETF strategist, said in a note to clients on Tuesday that investors are unlikely to abandon energy yet and may in fact still be underexposed to the space after some cyclical funds actually saw investors pull in cash last year. “Despite exceptional returns in 2022 (+65%), energy sector ETFs still recorded -$1.6 billion outflows. We have a positive view based on valuation, light positioning and fundamentals strong for commodities and equities,” the note read. Investors don’t need to be too exotic to take advantage of this setup, according to Woodard. Bank of America’s top picks for energy ETFs include the SPDR broad fund, the Vanguard Energy ETF (VDE), and the Invesco S&P 500 Equal Weight Energy ETF (RYE). Woodard described these funds as “low-cost options that offer strong risk-adjusted returns, above-average price momentum, and above-average exposure to BofA’s best stocks and industry picks.” The Invesco equally weighted fund is more expensive than the SPDR and Vanguard options, although it offers more exposure to smaller stocks. Chevron and Exxon Mobil together represent approximately 40% of the exposure of these cap-weighted funds. Woodard also launched coverage for the FirstTrust Energy AlphaDEX Fund (FXN), an active energy strategy based on a quantitative model. Woodard gave the fund the equivalent of a holding rating, in part because of its 0.64% expense ratio and exposure to some stocks, but it got the best of Bank of America in the Sortino Ratio, which is a measure of risk-adjusted return. – CNBC’s Michael Bloom contributed to this report.
These are Bank of America’s favorite ETFs to play another energy rally
