PXE: Investing In Oil And Gas Depends On Your Time Horizon

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chekyfoto Investment Thesis Invesco Energy Exploration & Production ETF (NYSEARCA:PXE) is a hold due to mixed factors impacting investment in the oil and gas industry. While crude oil and natural gas ...

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While crude oil and natural gas ...</p>\n\n<a href=\"https://seekingalpha.com/article/4696784-pxe-investing-in-oil-and-gas-depends-on-your-time-horizon\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>PXE: Investing In Oil And Gas Depends On Your Time Horizon</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPXE: Investing In Oil And Gas Depends On Your Time Horizon\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-01 00:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4696784-pxe-investing-in-oil-and-gas-depends-on-your-time-horizon><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>chekyfoto Investment Thesis Invesco Energy Exploration & Production ETF (NYSEARCA:PXE) is a hold due to mixed factors impacting investment in the oil and gas industry. While crude oil and natural gas ...</p>\n\n<a href=\"https://seekingalpha.com/article/4696784-pxe-investing-in-oil-and-gas-depends-on-your-time-horizon\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SG9999014559.SGD","symbol_name":"United Income Focus Trust Dis SGD","start_time":0,"source_url":"https://seekingalpha.com/article/4696784-pxe-investing-in-oil-and-gas-depends-on-your-time-horizon","article_id":"2440689910","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1298570727/image_1298570727.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2440689910","pubTimestamp":1717173940,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"chekyfoto Investment Thesis Invesco Energy Exploration & Production ETF (NYSEARCA:PXE) is a hold due to mixed factors impacting investment in the oil and gas industry. 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While crude oil and natural gas will likely maintain a dominant position in the global energy market, it is inevitably an exhaustible resource. Elevated gas prices will keep companies profitable, providing investors solid returns for PXE and peer funds in the short term. However, renewable energies will eventually overtake oil and gas in the long term. Fund Overview and Compared ETFs PXE is an ETF that seeks to track the Dynamic Energy Exploration & Production Intellidex Index. The fund therefore captures holdings that are involved in the exploration, extraction, and production of crude oil, natural gas, and lubricants. With its inception in 2005, the fund has 32 holdings and $144.56M in AUM. PXE includes a blend of large cap (25.2%), mid cap (31.26%), and small cap (43.54%) companies. For comparison purposes, other funds examined are iShares U.S. Oil & Gas Exploration & Production ETF (IEO), the Energy Select Sector SPDR Fund (XLE), and SPDR S&P Oil & Gas Exploration & Production ETF (XOP). IEO includes predominantly exploration and production holdings at 74.31% weight, but also includes refining, marketing, and transportation holdings at 25.18% weight. XLE includes over 90% weight on oil and gas companies but also includes 8.2% weight on energy equipment and services. Finally, XOP tracks a modified equal weight index and therefore has the most balanced concentration across its holdings. Funds Compared: Performance, Expense Ratio, and Dividend Yield Between 2014 and 2016, oil prices saw a massive decline globally. This decline, in combination with plummeting demand during the COVID pandemic, resulted in underperformance for PXE and peer oil and gas funds, compared to the overall market, over the past decade. While PXE saw a 10-year average annual return of 2%, its total price return was -8.92%. By comparison, PXE underperformed IEO and XLE which saw 10-year average annual returns of 4.66% and 3.96%, respectively. However, PXE outperformed XOP with a 10-year average annual return of -5.33%. 10-Year Total Price Return: PXE and Compared Oil & Gas Funds (Seeking Alpha) A key downside for PXE compared to peers is its expense ratio. At 0.60%, PXE is the most expensive oil and gas ETF compared. Because most holdings for PXE and peer funds are well established companies with robust income streams, each offer a noteworthy dividend yield. PXE specifically has a 2.31% dividend yield, which is roughly on par with peer funds. Additionally, PXE has the greatest dividend CAGR of 27.50%. Expense Ratio, AUM, and Dividend Yield Comparison     PXE IEO XLE XOP   Expense Ratio 0.60% 0.40% 0.09% 0.35%   AUM $144.56M $816.29M $38.32B $3.54B   Dividend Yield TTM 2.31% 2.60% 3.22% 2.29%   Dividend Growth 5 YR CAGR 27.50% 23.47% 7.10% 25.66%   Click to enlarge Source: Seeking Alpha, 30 May 24 PXE Holdings and Outlook Factors for Oil and Gas Because each ETF examined has 51 holdings or fewer, there are several similar companies that each fund contains. These similarities include Valero Energy (VLO), Coterra Energy (CTRA), and Diamondback Energy (FANG). While PXE is more diversified than XLE, it contains a heavy 46.95% weight on its top 10 holdings. XOP, due to its modified equal-weight index, has the most evenly distributed weight. Top 10 Holdings for PXE and Compared Oil and Gas ETFs (Similarities bolded)   PXE - 32 holdings IEO - 45 holdings XLE - 22 holdings XOP - 51 holdings   VLO - 5.31% COP - 18.58% XOM - 26.60% AR - 3.34%   CTRA - 5.17% EOG - 9.73% CVX - 17.19% CNX - 3.04%   FANG - 5.17% MPC - 8.68% COP - 8.58% MRO - 3.01%   DVN - 5.04% PSX - 8.13% EOG - 4.49% CHRD - 2.89%   EOG - 5.00% VLO - 4.86% SLB - 4.12% RRC - 2.84%   COP - 4.88% FANG - 4.86% MPC - 4.01% EQT - 2.82%   MPC - 4.86% HES - 4.70% PSX - 3.75% FANG - 2.77%   PSX - 4.54% DVN - 4.68% VLO - 3.33% SWN - 2.76%   CRK - 3.76% CTRA - 3.41% WMB - 3.08% XOM - 2.73%   CNX - 3.22% MRO - 2.77% OKE - 2.93% CIVI - 2.72%   Click to enlarge Source: Multiple, compiled by author on 30 May 24 Looking forward, there are both positive and negative factors impacting the demand, and therefore share price, for PXE and peer funds. In the short term, oil and gas will maintain a dominant energy provider for the next couple decades. Additionally, the industry will remain profitable to fuel the U.S. electric grid even as gasoline-powered vehicles decline. However, over the long term, fossil fuels will deplete in this century, presenting existential considerations for the oil and gas industry. Each of these variables are discussed in further detail below. Short Term Factor #1: Oil and Natural Gas Steady Decline Through 2050 A short-term factor that is a beneficial force for oil and gas is its dominance over renewable sources through 2040. This positive aspect is due to the well-established infrastructure and robustness of the oil and natural gas industry within the United States. However, this will hold true for only the next couple decades. While global energy demand will increase progressively each upcoming decade, the forecasted proportion of oil and natural gas will eventually decline. Looking forward, it is estimated that green energy will take over 62% of global power generation by 2050. Global Energy Demand by Fuel Type (in exajoule) (Analysis of ERTA model data, www.ey.com) The primary reason that renewable sources are not already dominant over fossil fuels is because wind, solar, and nuclear sources all have unique roadblocks. While the solar industry in the U.S. has been growing, connecting solar to electric grids along with shortages of the proper equipment and skilled solar workers are limitations to the industry's growth. While wind power is promising also, the industry is facing high costs. Finally, historic catastrophes have caused long-term perception issues with nuclear power. Because of these unique limitations, oil and natural gas will continue being the principal power source in the U.S. through 2040. Short Term Factor #2: Oil Prices Will Keep the Industry Profitable The second driving factor behind PXE is that the projected price of oil will remain at elevated levels, keeping the industry profitable. While many automakers have agreed to end gasoline-powered vehicles globally by 2040, demand for natural gas will remain elevated. However, oil and natural gas will remain both dominant and profitable. I previously wrote an article about how natural gas will power the electric grid in my coverage of First Trust Natural Gas ETF (FCG). In this article, I discuss how natural gas is required to adequately power the U.S. electric grid that is necessary to power electric vehicles. Therefore, although electric vehicles are expected to reach nearly 100% of vehicle market share by 2040, the oil and gas industry will likely remain profitable even after gas-powered vehicles decline. Geographic Share of EVs, 2010-2050 (IEA Global Outlook 2023, www.ey.com) Of course, transportation is just one of the demand sectors for oil consumption. Industrial, residential, commercial, and electric power will also contribute to oil's elevated price even after gas-powered vehicles become rare on the road. According to one forecast, crude oil is expected to reach $95 per barrel in 2050. Therefore, through 2050, one can reasonably expect PXE and peer funds to continue seeing solid performance. Long Term Factor: Fossil Fuels Are an Exhaustive Resource Despite the short-term factors discussed above, including the prevalence of oil and natural gas, there are long-term issues. Although there are barriers to alternative sources becoming more dominant, we cannot exclude the unmistakable truth that oil and natural gas are fossil fuels that will be exhausted this century. According to one estimate, oil deposits will be gone by 2052. Therefore, despite the need to fuel the electric grid, PXE's days are ultimately numbered. For investors with short time horizons, PXE can continue to be profitable. For multi-decade-long time horizons, there are reasons to be cautious. Current Valuation Despite the underperformance for PXE and peer funds over the past 10 years, PXE has outperformed both the overall market and peer competitors over the past year. Compared to the S&P 500's one-year return of 25.3%, PXE has outperformed with a 33% return. One Year Performance: PXE and Compared Oil and Gas ETFs (Seeking Alpha) As measured by price-to-earnings and price-to-book ratios, PXE is attractively valued compared to peer funds. With the P/E of 9.21 and P/B of 1.46, PXE has more favorable metrics compared to other examined oil and gas ETFs. Additionally, all the funds examined are more favorably valued that the market overall, as measured by the S&P 500 Index's high P/E ratio of 27.21. Looking forward, I believe PXE will continue to perform well over the next 10-15 years. Even as gasoline-powered vehicles see a drawdown, natural gas will be required to supply the U.S. electric grid. However, as discussed, after 2040 it appears very likely that other renewable sources will become dominant. Valuation Metrics for PXE and Peer Oil and Gas ETFs     PXE IEO XLE XOP   P/E ratio 9.21 8.97 12.34 10.50   P/B ratio 1.46 2.02 2.23 1.56   Click to enlarge Source: Compiled by Author from Multiple Sources, 30 May 24 Risks to Investors A key risk factor to PXE and peer oil and gas funds is volatility and sensitivity to oil prices. During COVID, demand for oil fell from 100 million barrels per day to 70-75 million barrels per day. This reduction resulted in PXE seeing a price decline of 63% in March 2020. While an extreme global event, conflicts and political policies also artificially change oil prices and profits. Just a few weeks ago, the Biden Administration released one million barrels of gasoline to reduce gas prices. This volatility caused by a variety of sources drives a high amount of uncertainty for PXE and peer funds. PXE also has a 5-year standard deviation of over 50. This represents significantly higher volatility than the market overall, as measured by the S&P 500 which has seen a standard deviation of less than 20. Concluding Summary  PXE has multiple factors positively impacting its performance over the next 10-20 years, including the dominance of oil and gas infrastructure over renewable sources as well as high demand including the need to power the electric vehicle grid. However, 2040 onward will see a steady decline for the oil and gas industry as it is replaced by renewable sources. Therefore, investors with shorter horizons may find PXE valuable, while long-term, buy-and-hold investors may be better suited elsewhere. While PXE is attractively valued, a key downside is its high expense ratio at 0.60%.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2440689910"}