Home etftrends.com Rising Energy Costs and Small-Cap Strength Are Fueling This ETF

Rising Energy Costs and Small-Cap Strength Are Fueling This ETF

The energy sector has been an obvious stellar performer this year, but when you add the propensity for large market movements with small-cap stocks, it makes for an explosive combination.

The White House is doing what it can to try and tamp down rising energy costs, especially with skyrocketing oil prices that are translating into pain at the pump. U.S. President Joe Biden is looking to tap into oil reserves in order to curb costs.

“The scale of this release is unprecedented: the world has never had a release of oil reserves at this 1 million per day rate for this length of time,” the White House said in a release per a CNBC report. “This record release will provide a historic amount of supply to serve as bridge until the end of the year when domestic production ramps up.”

Russia’s invasion of Ukraine has added an additional spike in energy costs that were already going up thanks to global inflation. Whether the latest moves by the federal government can make a tangible impact on tamping down energy costs is anyone’s guess.

In the meantime, investors can keep riding the rally in energy for as long as oil prices stay high. Even if they don’t, the energy sector is undergoing something of an evolution with a focus on more renewable sources like wind and solar.

^SGJ Chart

Small-Cap Growth and Energy Strength

The sensitivity of small-caps and the strength of the energy sector are reflected in the performance of the Invesco S&P SmallCap Energy ETF (PSCE). The fund is up almost 50% this year on the back of higher energy costs, making it an ideal inflation hedge if investors so choose.

PSCE seeks to track the investment results of the S&P SmallCap 600® Capped Energy Index. The fund generally will invest at least 90% of its total assets in the securities of small-capitalization U.S. energy companies that comprise the underlying index.

These companies are principally engaged in the business of producing, distributing, or servicing energy-related products, including oil and gas exploration and production, refining, oil services, and pipelines. The fund’s expense ratio comes in at 0.29%, which is a relative bargain given its category average of 0.47%.

PSCE Chart

PSCE Chart

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