Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Published: September 13, 2004
The Energy Sector SPDR (XLE) is an exchange-traded fund designed to
track the performance of the S&P Energy Sector Index. With the
enormous surge in oil prices this past year, XLE has become the most
actively traded sector index on the market (excluding HOLDRS). XLE's
average daily volume was more than 2.2 million shares per day in August
and has averaged over 1.4 million shares each day this year. This compares with an average daily volume of just 422,000 shares in 2003.
The Energy Sector SPDR is not a very well diversified ETF. The fund,
which accounts for just under 7% of the value of the S&P 500,
includes 27 companies. However, 68.75% of the fund's value resides in
its ten largest holdings. The top two spots, Exxon Mobil (XOM, $47.37)
and ChevronTexaco (CVX, $50.03), account for 21.84% at 15.45%
respectively (data as of September 3, 2004).
Options in XLE are available, but are rather illiquid. Options in XOM
and CVX are far better traded. The correlation between the price of
Exxon Mobil and XLE is nearly 85%. The correlation between XLE, CVX and
XOM combined is above 88%. This means that you can effectively hedge
your XLE exposure via options in CVX and XOM. The very high weighting of
these two issues also means that you need to take special account of
news and the technical situation for each of these stocks when trading
XLE.
In the past, energy stocks have made excellent defensive plays. XLE did not
top until May 2001, and lost much less during the 2000-2003 bear market, top to bottom, than did the
overall S&P 500. Its dividend yield is normally fairly high, but the
fund's strong gains this year have left its yield close to the S&P 500 norm
(XLE sports an annual dividend yield of about +1.5%). With XLE near record highs,
it is unlikely to make a particularly good choice as a defensive sector
if stocks turn lower from their mid-2004 levels.
Although most of XLE's component stocks are involved heavily in the oil patch, oil
prices are not highly correlated with XLE (near 10%). Recently, oil has appeared to
show a leading relationship to XLE. That is, turns in the price of oil
have preceded turns in the price of XLE. For example, oil hit a new high
in mid-August and has fallen fairly sharply since then. However, XLE made a
new high more than two weeks after that.
There may be several reasons as to why oil and XLE do not show a very
high correlation. Some of these include:
- Many of the Energy SPDR's component stocks are highly diversified. They not only
operate in the oil patch, but many are also involved with chemicals
and even consumer products.
- Although oil prices are economically sensitive, the changing
nature of demand for the product, due to the growth of China and
India, has altered the way oil is priced. XLE is tied to the
expected profitability of its component companies, which may only react in a
delayed manner to changes in oil prices.
- Inventory levels also affect the profitability of XLE's component
stocks. If inventories are already high, at least for derivative
products such as gasoline, then the effect of a change in the price of
crude oil may be delayed on the price of oil stocks.
| Energy
SPDR (XLE) |
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| Type: |
Sector |
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| Similar funds: |
GS
Natural Resources (IGE) |
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Oil
Services HOLDR (OIH) |
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| Options?: |
Yes, illiquid |
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| Performance
Data |
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| 52-week High: |
$32.92 |
9/3/2004 |
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Annualized
return since: |
| 52-week Low: |
$23.75 |
9/30/2003 |
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One-year |
35.14% |
| YTD Return: |
21.13% |
(as
of 7/30/2004) |
Three-year |
6.20% |
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Five-year |
3.41% |
| Dividends: |
$0.49 |
past 12-mos |
Life of fund* |
7.77% |
| Expense: |
0.28% |
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*
- Started trading 12/22/1998 |
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| Correlation
Data* |
(1/02/02-8/31/04) |
Holdings* |
(as of
9/3/2004) |
| Dow
Jones Industrials |
68.2% |
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Exxon
Mobil (XOM) |
21.84% |
| S&P 500 |
|
68.5% |
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Chevron
Texaco (CVX) |
15.45% |
| Nasdaq
Composite |
55.9% |
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Conoco
Phillips (COP) |
8.01% |
| Nasdaq-100 |
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53.8% |
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Schlumberger
(SLB) |
3.98% |
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Occidental
Petr. (OXY) |
3.94% |
| IGE |
|
80.2% |
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Devon
Energy (DVN) |
3.32% |
| OIH |
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86.9% |
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Andarko
Petr. (APC) |
3.14% |
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Burlington
Res. (BR) |
3.12% |
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Apache
(APA) |
3.04% |
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Baker
Hughes (BHI) |
2.91% |
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* Percent
top ten are of total |
68.75% |
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| Average
Daily Volume |
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Average
Daily Price Range |
| Aug-04 |
2,217,159 |
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Aug-04 |
1.6% |
| 2004 YTD |
1,404,411 |
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2004 YTD |
1.5% |
| 2003 |
422,109 |
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2003 |
1.5% |
| *
- Correlation measures how closely the two items track each
other |
*
Includes prior day's close (true range) |
HOW TO MAKE MONEY IN XLE THIS YEAR
XLE was showing substantial momentum divergences as of early September
2004. However, my analysis indicates that the fund can still trade higher.
I expect the fund to reach $35-$36 before a large drop (to
about $28 or even $25) starts. XLE needs to remain an overweight in
any portfolio.
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Investing Doesn't Get Any Easier Than This |
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