Energy stocks staged an impressive comeback in late 2020 and the first half of 2021. Oil and gas prices surged on the back of improved demand as the global economy started to reopen. Canada lagged its peers with its vaccine rollout initially but has since grown into a global leader.
Unfortunately, momentum for the oil and gas space has waned in the second half of the year.
Oil and gas prices have weakened as the rising Delta variant has spooked investors. There are concerns that a resurgence in COVID-19 could torpedo demand in the months ahead. Moreover, higher production output from the Organization of the Petroleum Exporting Countries has also put pressure on the sector.
The iShares S&P/TSX Capped Energy Index ETF (TSX:XEG) seeks to replicate the performance of the S&P/TSX Capped Energy Index. Shares of this ETF have climbed 34% in 2021 as of mid-afternoon trading on August 10. The stock has dropped 8.2% month over month. Investors will likely be familiar with the top holdings in the account. They include Canadian energy giants like Suncor Energy (TSX:SU) , Cenovus Energy (TSX:CVE), and Imperial Oil (TSX:IMO) in the top five weighted equities.
It is hard to ignore the risk the rising Delta variant carries for the broader economy. However, Canada is ahead of the game as it has experienced strong success with its vaccine rollout. Investors will want to watch the global situation closely, as plunging demand could stall the momentum the sector has built. I’m taking a wait-and-see approach with this ETF right now.
