The Bullish Trend Continues For Energy Sector ETFs

oil gasThe energy sector is rebounding strongly on high oil prices and oil production growth. It is doing well this earnings season with earnings beat ratio of 80% and revenue beat ratio of 40%. In fact, energy is one of the leading sectors after construction and consumer discretionary.

Strong performance by top players such as Schlumberger (SLB), Baker Hughes (BHI) and Halliburton (HAL) is fueling the growth in the broad sector. Further, stronger-than expected results from Europe’s third largest oil company, BP plc (BP), supports the bullish trend as we close out 2013.

BP Earnings in Focus

The British oil giant reported earnings of $1.17 per share. Though earnings fell 26% year over year on declining refining margins, it easily beat the Zacks Consensus Estimate of 97 cents. Revenues rose 5% to $96.6 billion.

Driven by the solid earnings beat, the company announced a series of measures to encourage investors. BP hiked its annual dividend by 5.6% to 57 cents per share and plans to divest another $10 billion in assets by 2015. The proceeds will be used to reward shareholders in the form of buybacks.

While this speaks favorably of the company, the current macro trends might create some headwinds for the near future. Oil production at BP fell 2.3% from the year-ago quarter and may continue to shrink this fiscal year thanks to asset sales.

Market Impact

The market has welcomed BP’s earnings beat and its strategy to boost shareholders return through dividends and buybacks. The shares of BP jumped 5% at the close on Tuesday on elevated volumes. This marks the biggest one-day gain since January 2011 (read: 3 Top Performing Energy ETFs in Focus Now).

This news has spread optimism across the broad energy sector with stocks of other players in the space in green at the close on the day. These players include WPX Energy (WPX) – up 3.8%, Pioneer Natural Resources (PXD) – 3.3%, Valero Energy (VLO) – up 1.9%, Exxon Mobil (XOM) – up 0.8%, Chevron (CVX) – up 0.5% and ConocoPhillips (COP) – up 0.6%.

ETFs to Consider

Given BP’s strength to lift the whole energy sector and the solid run up in its share price, the following three ETFs could be worth a look for investors seeking to ride out the recent surge in the global energy sector. The trio has the largest allocation to the oil giant and looks to be in focus in the coming days with room for upside.

SPDR S&P International Energy Sector ETF (IPW)

This fund provides exposure to the energy companies of developed markets excluding the U.S. by tracking the S&P Developed Ex-U.S. BMI Energy Sector Index. It is less popular and illiquid with $12.9 million in its asset base and around 4,000 shares in average daily volume. The ETF charges 50 bps in fees per year from investors.

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