Are Energy Funds Ready for a Recovery?

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Is the energy sector ready to bounce back?


Are Energy Funds Ready for a Recovery?

Justin Kuepper Nov 02, 2015

Given the substantial drop, many investors are asking themselves whether the commodities have been oversold and energy funds may be well-positioned for a recovery.

Underlying Fundamentals

Crude Oil Prices

The world’s leading oil cartel, OPEC, may also be partly to blame for the dramatic fall in energy prices. Since failing to cut production in 2014’s meeting, benchmark crude oil prices have fallen more than 50%, but no action has been taken to intervene in order to stabilize the market.

Finding Opportunities

Performance Comparison with Energy Index

As for the rest of the energy sector, the best chances for a turnaround hinge on a successful global economic recovery that seems increasingly elusive. China’s industrial production figures remain on the decline, which is a bad sign for energy demand from Asia, while the ECB’s decision to (almost certainly) announce more stimulus is indicative that the region’s problems may be resurfacing and could jeopardize the progress made so far.

The Bottom Line

These dynamics have left most of the energy industry in a tough place, which will require a rebound in the global economy to remedy, although refiners have been a bright spot for many mutual funds that have increased investments in the space. Investors looking for a lower cost alternatives to these funds should consider an energy tracking ETF like XLE.

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