Investment objective
The iShares S&P/TSX Capped Energy Index ETF (XEG) offers an attractive option for Canadian investors who want exposure to the energy sector. The primary goal of XEG is to replicate the performance of the S&P/TSX Capped Energy Index, which tracks the overall performance of the Canadian energy market. This makes XEG an ideal vehicle for those seeking a diversified entry point into the energy sector without the need to buy individual energy stocks.
Investors in XEG gain exposure to a wide array of companies involved in the exploration, production, and distribution of energy. These companies range from large, established oil and gas producers to newer firms that are innovating within the energy space. The ETF allows you to invest across the entire energy value chain, from upstream exploration to downstream distribution, all through a single, low-cost investment.
Why would investors consider XEG?
Diversification in the Energy Sector: XEG includes a variety of companies from different energy sub-sectors, reducing the risks associated with investing in individual companies. Investors can capture a broad range of opportunities across the Canadian energy landscape, from traditional oil producers to more diversified energy firms.
Low-Cost Access: XEG offers an affordable way to gain exposure to the energy sector. Compared to actively managed funds or picking individual energy stocks, XEG’s management fees are lower, making it a cost-effective option for long-term investors.
Performance Linked to the Energy Sector: Since XEG tracks the S&P/TSX Capped Energy Index, its performance is directly tied to the overall health of the Canadian energy sector. As the energy industry remains a significant driver of the Canadian economy, this ETF benefits from the cyclical upsides of oil and gas prices and energy demand.
Easy Entry Point for Sector-Specific Investing: Whether you’re bullish on energy prices or looking to diversify your portfolio, XEG offers an easy way to include a critical sector of the Canadian economy in your investment strategy. It’s particularly attractive for investors with a positive outlook on the future of energy markets or those wanting to hedge against inflation through energy investments.
In summary, XEG is an effective tool for Canadian investors looking to capitalize on the energy sector’s growth. Whether you’re interested in traditional oil and gas or the broader energy market, XEG provides a convenient and cost-efficient way to gain exposure.
Historical performance vs similar funds
XEG.TO is a standout performer with a YTD return of 11.45%, a 3-year average return of 26.30%, and a 5-year average return of 18.05%. Its combination of solid returns and low fees makes it an attractive option for investors seeking exposure to the energy sector. However, it’s important to keep in mind that XEG has significant concentration risk, with a large portion of the fund invested in just two companies: Canadian Natural Resources and Suncor. This concentration exposes the ETF to potential volatility if either of these companies underperforms.
NNRG.NE shows promise with a YTD return of 6.65% and a 3-year average return of 22.56%. Although it lacks a 5-year history, its focus on mid-cap energy stocks provides diversification away from the larger energy players that dominate the other funds.
ENCC.TO currently lacks sufficient return data, making it difficult to assess its performance. As more data becomes available, it may be worth considering.
NXF.TO has a YTD return of -0.50%, a 3-year average return of 17.02%, and a 5-year average return of 7.87%. Its covered call strategy aims to enhance income generation, which could appeal to dividend-focused investors, though its recent negative YTD performance indicates it might lag in times of market volatility.
ZEO.TO delivers strong returns with a YTD return of 17.60%, a 3-year average return of 22.25%, and a 5-year average return of 16.65%. This solid performance makes it a competitive option, especially for those seeking high returns within the energy sector.
In conclusion, XEG.TO remains a top performer despite the potential risks of concentration, while ZEO.TO and NNRG.NE offer competitive alternatives. NXF.TO, with its income-focused strategy, could be more suitable for dividend-oriented investors, and ENCC.TO is one to watch as it gathers more data.
Fees
Top 10 holdings
| Ticker | Name | Weight (%) |
|---|---|---|
| CNQ | CANADIAN NATURAL RESOURCES LTD | 26.12 |
| SU | SUNCOR ENERGY INC | 21.45 |
| CVE | CENOVUS ENERGY INC | 11.74 |
| TOU | TOURMALINE OIL CORP | 7.71 |
| IMO | IMPERIAL OIL LTD | 4.97 |
| ARX | ARC RESOURCES LTD | 4.70 |
| MEG | MEG ENERGY CORP | 2.67 |
| WCP | WHITECAP RESOURCES INC | 2.10 |
| CPG | CRESCENT POINT ENERGY CORP | 2.01 |
Sector allocation
| Type | Fund |
|---|---|
| Oil & Gas Exploration & Production | 55.31 |
| Integrated Oil & Gas | 38.16 |
| Oil & Gas Drilling | 5.08 |
| Oil & Gas Equipment & Services | 1.42 |
| Cash and/or Derivatives | 0.03 |
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