Diversification, by its nature, requires investing in sectors which may underperform in the short-term, with the expectation that these sectors will provide some sort of portfolio insurance when the market turns.
Holding a portfolio of stocks in sectors which are negatively correlated to each other is important to minimize risk and maximize returns over long periods of time; failing to do so can result in significant losses during down cycles for investors looking to maintain a relatively steady value of their nest egg over time.
The energy sector is one which has been hit very hard of late, and is a sector with few positive catalysts on the horizon to take equities higher.
Many energy producers have experienced stock price declines which have pushed many long-term investors into other sectors, as the long-term outlook of said companies continues to lag behind peers in other sectors.
That being said, the fact that valuations have dipped for many energy companies has resulted in a situation in which many of these firms are now attractively priced compared to historical levels.
One exchange traded fund (ETF) which is available for investors looking to pick up energy stocks at a reasonable valuation is Energy Select Sector SPDR Fund (TSX:XLE). This ETF holds some of the best energy companies out there, at levels which make this ETF a steal, in my opinion.
Invest wisely, my friends.
