PXE - PXE: Targeted Exposure In Energy

2023-12-02 09:40:35 ET

Summary

• Invesco Energy Exploration & Production ETF provides targeted exposure to the energy exploration and production sector.
• Top holdings of PXE include Valero Energy, Phillips 66, Marathon Petroleum, Diamondback Energy, and EOG Resources.
• Compared to other energy ETFs, PXE has outperformed in terms of returns over the past three years, but timing may be challenging.

I've talked about the long-term case for the energy space, and there are a number of great ETFs that track the sector. One such ETF is the Invesco Energy Exploration & Production ETF ( PXE ), which provides targeted exposure to the energy exploration and production sector. The objective of the fund is to mirror the performance of the Dynamic Energy Exploration & Production Intellidex? Index. This index assesses companies using numerous investment merit parameters, such as price momentum, earnings momentum, management decisions, quality, and value. PXE is a non-diversified fund that usually invests at least 90% of its total assets in the securities that make up the index.

Detailed Analysis of PXE's Top Holdings

PXE's portfolio comprises securities of multiple US-based companies involved in the exploration and production of natural resources used to produce energy. The fund does not merely focus on the size of the companies but also their value. Top holdings include:

• Valero Energy (VLO): Operating as a multinational firm, Valero Energy is a significant producer and distributor of transportation fuels. It stands as one of America's leading independent companies in petroleum refining and marketing.
• Phillips 66 (PSX): This is a versatile energy manufacturing and logistics corporation. Phillips 66 boasts a diversified business portfolio encompassing Midstream, Chemicals, Refining, and Marketing and Specialties.
• Marathon Petroleum (MPC): Recognized as a major American petroleum refining, marketing, and transportation entity, Marathon Petroleum is among the largest refiners, marketers, and transporters of petroleum products across the United States.
• Diamondback Energy (FANG): Functioning as an independent oil and natural gas corporation, Diamondback Energy is dedicated to the acquisition, development, exploration, and exploitation of unconventional, onshore oil and natural gas reserves, primarily within the Permian Basin in West Texas.
• EOG Resources (EOG): EOG Resources is counted among the largest U.S. companies specialized in crude oil and natural gas exploration and production. It possesses reserves across the United States, Canada, offshore Trinidad, the United Kingdom's North Sea, and China.

Top 10 holdings for the fund account for 47% of the portfolio, so it's certainly concentrated from that perspective.

Sector Composition and Weightings

PXE provides a balanced exposure to the energy sector. Its sector allocation is divided into three categories:

• Oil & Gas Discovery and Extraction: This industry encompasses businesses that carry out the discovery of potential subterranean or subaquatic oil and gas reserves, initiate exploratory drilling, and subsequently manage the drilling and operation of wells to extract and transport crude oil or raw natural gas to the surface.
• Oil & Gas Purification and Distribution: This industry involves businesses that convert crude oil into a variety of refined products, such as gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied petroleum gas ((LPG)), lubricants, bitumen, and waxes.
• Natural Gas Utilities: This industry consists of businesses that deliver and sell natural gas to the final users, including residential, commercial, and industrial customers.

Peer Comparison

Compared to more prominent and diverse energy ETFs, such as the Vanguard Energy ETF ( VDE ) and Energy Select Sector SPDR® ETF ( XLE ), PXE has outperformed in terms of returns over the past three years. PXE's weightings and focus on exploration and production companies give it an edge over its peers in periods of rising oil prices.

Pros and Cons

Investing in PXE offers a unique opportunity to gain exposure to the energy exploration and production sector. However, like any investment, it comes with both potential rewards and risks.

Pros :

• Diversification : PXE offers diversified exposure to the energy sector, reducing the risk associated with investing in individual stocks.
• Potential for High Returns : PXE's heavy focus on production and exploration companies positions it well for periods of rising oil prices, potentially leading to high returns.
• Liquidity : As an ETF, PXE offers high liquidity, allowing investors to buy and sell shares easily.

Cons :

• Oversupply Risk : The energy sector is vulnerable to oversupply issues, which can significantly impact oil prices and, in turn, the performance of PXE. Admittedly, we are very far from this now.
• Geopolitical Risks : The energy sector is often influenced by geopolitical events, which can cause significant price volatility.
• Environmental Concerns : As the world moves towards greener energy sources, traditional energy companies may face increased regulation and competition.

Conclusion: Should you Invest in PXE?

Investing in PXE offers a unique way to gain exposure to the energy exploration and production sector. It provides a diversified portfolio of energy companies and stands to benefit from rising oil prices. In the long term, PXE appears to be a solid investment. However, its recent momentum appears to have faltered, which investors should take into account before making a decision. Good fund, good space, challenging timing here from a chart perspective.

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