Use This Tiny ETF to Play Global Energy Stocks

By  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 by The ETF Professor.

Apple To Officially Build Computers in the US
Lululemon Swings Between Gains and Losses Following Earnings Report
Chevron Cash Reserves Spark Acquisition Speculation

Twitter: @Benzinga

Benzinga Pro covers this and all market news in real time. Get your free trial here.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.