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Can Exxon, Chevron's Solid Q2 Earnings Revive Energy ETFs?

Sweta Killa

Just a day before the release of earnings of U.S. supermajor oil producers, the energy sector was badly hit by the dual attack of rate cuts and new China tariff. Though the Fed lowered interest rates for the first time in more than a decade, it dampened hopes of a string of rate cuts to shore up the economy, which is witnessing a slowdown and taking a toll on oil demand.

Additionally, President Trump announced additional tariffs of 10% on the remaining $300 billion in Chinese goods effective September, which intensified concerns over global growth. This will further weaken oil demand (read: Energy ETFs Crash on Rate Cut and New China Tariff).

Further, energy seemed to be the second weakest sector at the start of the Q2 reporting cycle. This is especially true as total Q2 earnings from 30% of the sector’s total market cap in the S&P 500 Index is down 96.4% from the same period last year on 3.1% lower revenues. Earnings beat ratio is 76.9% while the revenue beat ratio is 69.2% at this stage.

In particular, two U.S. supermajor oil producers — Exxon Mobil XOM and Chevron CVX — came up with robust results. Exxon Mobil beat on both earnings and revenues while Chevron lagged revenue estimates.

Earnings in Focus

The largest U.S. oil producer, Exxon Mobil, reported earnings per share of 73 cents, outpacing the Zacks Consensus Estimate of 68 cents but deteriorating from the year-ago earnings of 92 cents. Revenues dropped 6% year over year to $69.1 billion but edged past the estimated figure of $65.8 billion.

Chevron topped earnings per share by 53 cents. Earnings per share of $2.27 were higher than the year-ago earnings of $1.78. Revenues slid 8% year over year to $38.8 billion and lagged the estimated $41.7 billion.    

ETFs in Focus

Given this, investors might want to tap beaten down energy ETFs having the largest allocation to these energy behemoths. Below we have highlighted some of them in detail.

Energy Select Sector SPDR XLE

This is the largest and most-popular ETF in the energy space with AUM of $11.6 billion and average daily volume of around 13.1 million shares per day. Expense ratio comes in at 0.13%. The fund follows the Energy Select Sector Index and holds 29 securities in its basket. XOM and CVX occupy the top two spots with 22.1% and 20.4% share, respectively. XLE has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Energy ETFs Look Weak Ahead of Key Q2 Earnings Releases).

iShares U.S. Energy ETF IYE

This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to U.S. companies that produce and distribute oil and gas. It holds 66 stocks in its basket with AUM of $668.1 million and average daily volume of about 440,000 shares. The product charges 43 bps in fees per year from investors. Exxon Mobil and Chevron occupy the top two positions in the basket, taking the bigger chunk of assets at 23.9% and 17.8%, respectively. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Vanguard Energy ETF VDE

This fund manages about $3.3 billion in asset base and provides exposure to a basket of 139 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees a good volume of about 274,000 shares and charges 10 bps in annual fees. Here again, Exxon and Chevron are the top firms with 23% and 17% allocation, respectively. VDE carries a Zacks ETF Rank #3 with a High risk outlook (see: all the Energy ETFs here).

Fidelity MSCI Energy Index ETF FENY

The fund follows the MSCI USA IMI Energy Index, holding 129 stocks in its basket. Out of these, XOM and CVX take the top two spots at 23% and 17.2%, respectively. The product charges 8 bps in annual fees and trades in a good volume of around 205,000 shares. It has accumulated $455 million in its asset base and has a Zacks ETF Rank #3 with a High risk outlook.

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Energy Select Sector SPDR Fund (XLE): ETF Research Reports
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
iShares U.S. Energy ETF (IYE): ETF Research Reports
Chevron Corporation (CVX) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
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