The energy sector hasn’t peaked just yet as rampant inflation continues to push prices higher. According to global investment firm JPMorgan, there’s still more room for potential upside.
The energy sector will be driven by strong fundamentals where demand will only exceed supply moving forward. As such, strong earnings growth will also help drive more strength in the sector.
“Energy is the only sector that is seeing quality, growth, and momentum scores improve simultaneously while maintaining an attractive value and income profile,” JPMorgan’s Dubravko Lakos-Bujas said in a Markets Insider article.
“While investor interest and sentiment has clearly inflected from record lows over the past year, energy stocks are far from pricing in strong and sustainable outlooks for fundamentals and shareholder returns,” Lakos-Bujas said.
3 ETFs to Play the Momentum
Invesco has various funds that cater to the energy sector, and one place to start is the Invesco S&P Small Cap Energy ETF (PSCE), which tracks the S&P SmallCap 600® Capped Energy Index. Companies included in the index 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.
Another fund to consider as a backdoor play to direct energy equities exposure is the Invesco Dynamic Energy Exploration & Production ETF (PXE), which seeks to track the investment results of the Dynamic Energy Exploration & Production Intellidex Index. The intellidex is composed of common stocks of U.S. companies involved in the exploration and production of natural resources used to produce energy.
Lastly, another ETF involves using an equal-weight strategy to avoid over-concentrating in a few stocks. The Invesco S&P 500 Equal Weight Energy ETF (RYE) seeks to track the investment results of the S&P 500® Equal Weight Energy Index, which is composed of all of the components of the S&P 500® Energy Index, an index that contains the common stocks of all companies included in the S&P 500® Index that are classified as members of the energy sector, as defined by the Global Industry Classification Standard (GICS).
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