Energy's Struggles Highlight This ETF's Utility

Last year, the Energy Select Sector SPDR (ETF) (NYSE: XLE) jumped 28 percent as energy, the seventh-largest sector weight in the S&P 500 ranked as one of the best-performing groups in the benchmark U.S. equity index.

Recent Performance

This year, the S&P 500 is climbing without much assistance from the energy patch. On the back of Thursday's decline, XLE is down 4.3 this year. However, the energy sector's struggles to start 2017 are benefiting at least one ETF: The ProShares S&P 500 Ex-Energy ETF (NYSE: SPXE).

It is just one day, but Thursday illustrates SPXE's advantages during periods of weakness for energy stocks. XLE fell almost 1 percent Thursday while the S&P 500 lost almost 0.6 percent, but SPXE finished higher by nearly 0.8 percent and was one of a small number of ETFs to hit a record high Thursday. SPXE, which debuted in September 2015, is now up 7.6 percent year-to-date.

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SPXE Index And Holdings

SPXE tracks an index that is essentially a no energy offshoot of the S&P 500. Without energy in play, SPXE held 469 stocks at the end of the fourth quarter, according to ProShares data. The average market value of the companies in SPXE is almost $40 billion.

At the end of last year, energy accounted for almost 7.6 percent of the S&P 500's weight. By excluding that sector, SPXE is overweight the other 10 S&P 500 sectors to varying degrees. For example, at the end of last year, SPXE was overweight telecom by just 21 basis points compared to the S&P 500. SPXE's largest overweight was a 170 basis-point advantage to technology relative to the traditional S&P 500.

Even though SPXE excludes energy stocks, its performance has not widely deviated from the S&P 500. Since coming to market, SPXE is up about 16 percent while the S&P 500 is higher by 15 percent. Of course, the risk with SPXE is that if the energy sector were to enter a multi-year bull market, the ETF could lag traditional S&P 500 equivalents.