|Use This Tiny ETF to Play Global Energy Stocks|
By Benzinga.com DEC 06, 2012 2:20 PM
Investors looking to exploit the strength of foreign energy companies should consider this ETF.
Even embattled BP (NYSE:BP), Europe's second-largest oil company, yields an attractive 5.2%. That is double Exxon's yield and well above the 3.4% offered by Chevron (NYSE:CVX).
Investors looking to exploit this theme at the ETF level should consider the tiny SPDR S&P Energy Sector ETF (NYSEARCA:IPW), which S&P Capital IQ rated Marketweight in a recent research note. IPW yields 3.3%, nearly double the dividend yield on the far larger Select Sector Energy SPDR (NYSEARCA:XLE).
The big stumbling block with IPW is its diminutive stature. The fund has just $11.1 million in assets, which as S&P Capital IQ notes, contributes to a wide bid/ask spread and the firm's tepid overall ranking of the fund.
On the bright side, IPW "owns a number of stocks that our global equity research team views as attractively valued, with many of the companies having investment grade credit ratings from Standard & Poor's Ratings Services," S&P Capital IQ said in the note.
Two Royal Dutch Shell securities combine for 16.5% of IPW's weight, making the Anglo-Dutch oil giant the most represented company in the ETF. BP at 9.9% is IPW's largest individual holding. France's Total (NYSE:TOT), Italy's Eni (NYSE:E), and Canada's Suncor Energy (NYSE:SU) are also found among the fund's top-10 holdings. Overall, four of IPW's eight largest holdings are rated Buy by S&P Capital IQ.
"S&P Capital IQ's Buy recommendation on Total is supported by its above-average 6% dividend yield and a belief that its conventional upstream portfolio is strong," the firm said in the note. S&P "estimates that the company's four-year upstream unit costs are low compared to its super-major peers and its organic reserve replacement rate will be over 100% in 2012-15. In addition to being an S&P Capital IQ Buy recommended stock, Total has a Standard & Poor's Credit Rating of AA-."
Year-to-date, IPW has lagged the performance of XLE, but the SPDR fund has slightly outperformed the rival iShares MSCI ACWI [ex US Energy Sector Index Fund] (NYSEARCA:AXEN).
Another point is in IPW's favor is developed markets exposure. The fund offers token exposure to South Korea, but none to Brazil. That means Petrobras (NYSE: PBR), one of the worst-performing major global oil stocks over the past several years, is not part of IPW's lineup.
Editor's Note: This content was originally published on Benzinga.com by The ETF Professor.
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