“Equal-Weight” Versus “Waterlogged”:
When one looks at the overall energy group through a major S&P sector lens, the focus is on the XLE. The ETF has put up a robust performance in 2021 up 30% thus far, making it the second-best actor of the 11 major sectors. It can be considered a top-heavy fund with XOM and CVX comprising 45%. When compared to a more “equal weight” energy ETF in the XOP on the ratio chart below, one can see the latter at the moment is in firm control. On a YTD basis, the XOP is higher by more than 70% well more than double that of the XLE. When looking into the composition of the XOP, it can be called equal-weighted as no holding makes up more than 3%. The ratio chart below suggests there may be a “risk-on” flavor within as investors are loosening on their grip to own large mega-cap, big dividend-paying energy giants. The weighting of XOM and CVX, top 5 holdings in the XOP are less than a combined 6%. Perhaps we are on the verge of seeing a broadening of the energy rally with positive breadth if the XOP is trying to tell us something here.