Energy ETFs Making Noise To Start 2016

Flows data indicate exchange traded funds investors have been pensive to start 2016. Five of this year's top 10 asset gathering ETFs are bond funds and another member of the top 10 group is the SPDR Gold Shares GLD.

Just three of the top 10 asset-gathering ETFs to start the year are equity-based funds and two of those are distinctly low beta or reduced volatility products. On the other hand, each of the 10 worst ETFs in terms of year-to-date lost assets are equity funds.

Arguably, one of the surprises among this year's top asset-gathering ETFs is the still flailing United States Oil Fund USO. USO, which tracks West Texas intermediate futures, has seen year-to-date inflows of nearly $876 million, a total exceeded by just nine other ETFs.

“While the broader market seems to be rising and falling in relation to the price of oil in early 2016, investors have used ETFs in a bullish manner. The U.S. ETF industry pulled in just $348 million in new assets in January, coming on the heels of 2015's $242 billion in client inflows. Flows were restrained by $15.5 billion in outflows for U.S. and international equity products. However, energy was one of the bright spots as $701 million in fresh money flowed into US diversified energy ETFs and $209 million into U.S. oil & gas exploration ETFs in January according to Factset data,” said S&P Capital IQ in a recent note.

The Energy Select Sector SPDR XLE, the largest equity-based exchange-traded fund tracking the energy sector, was the worst performing of the nine legacy sector SPDR ETFs in each of the past two years. While still not in the green this year, XLE is far from being 2016's worst-performing sector SPDR ETF. In fact, investors have added $239.4 million to the benchmark energy ETF. 

“According to Stewart Glickman, S&P Capital IQ energy equity analyst concerns over Chinese demand growth (or lack thereof) has weighed on the market. Bentek Energy forecasts WTI averaging $42 per barrel in 2016, rising to $53 per barrel in 2017. Glickman suspects that U.S. crude oil supply, which peaked in April 2015 at 9.6 million barrels per day, will see gradually lower production over the course of 2016, and see that decline accelerating in 2017 as two years of restrained upstream investment finally catches up. If realized, Glickman thinks we're about a year away from improved crude oil prices for producers,” said S&P Capital IQ.

Waiting a year for higher oil prices to benefit exploration and production companies is a long time, particularly for holders of the volatile SPDR S&P Oil & Gas Exploration & Production ETF XOP.

Highlighting XOP's often intimate correlation to oil prices, the ETF is off 48.3 percent over the past year while USO is off 52.3 percent over the same period. Still, investors have added nearly $23 million in new assets to XOP this year.