Oil prices have been showing some volatility of late as a result of instability in the Middle East and concerns about what a conflict could mean for the supply of oil. And while things have cooled for now, that doesn’t mean that the conflict in that part of the world is over.
One of the things that can send oil prices up in a hurry are supply shortages. Even just the fear that there may be a shortage can often be enough to generate bullishness. In not just oil prices but oil and gas stocks too.
That’s where investing in the Energy Select Sector SPDR Fund (NYSEArca:XLE) could be a good option for investors today to diversify and ensure they have exposure to the industry.
The ETF holds many of the top energy stocks in the world, including Exxon Mobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX), with the two companies making up a combined 41% of the fund’s net assets. Both are giants in the industry and can give investors the ability to benefit from a rising price of oil.
The ETF hasn’t had the best track record over five years, declining by 22% during that time. However, things have steadied in the past 12 months as it has fallen by just 3%.
But what makes the stock attractive, in addition to the potential that it gets a bump up from rising oil prices, is that its distribution yield over the past year has totaled 6.76%. That can help compensate investors for lacklustre returns and help pad the ETF’s overall performance.
And with an expense ratio of just 0.13%, the low-cost fund could be a great option for long-term investors, ensuring that a big chunk of their earnings won’t be going to pay for the fund’s management fees.
