Vincent van Gogh, the Dutch Post-Impressionist painter, is quoted as saying, “What would life be if we had no courage to attempt anything?”
This statement resonates with me on both a personal and business level. Oddly enough, it also currently resonates with me on an energy level. Sure, the political climate is stifling — but when is it not? Sure, the market climate is in flux — but again, when is it not?
Not to mention oil price fluctuations and erratic gasoline prices. How courageous does that sentiment make you feel? Don’t worry — I don’t want an answer, I want to present a possible beacon of light in the form of the Vanguard Energy ETF (VDE).
VDE tracks the MSCI US Investable Market Energy 25/50 Index, and gives investors exposure to large-, mid- and small-cap companies that power our way of life. Think of it as the hors d’oeuvre platter of the U.S. energy landscape: oil and gas majors like ExxonMobil, Chevron, and ConocoPhillips, service providers such as Schlumberger and even some niche players further down the chain.
VDE aims to alleviate some of the guesswork when it comes to which stocks will benefit most from the next commodity swing and simply allows an interested investor to own them all in one tidy fund.
It’s no secret that the energy sector is one of cycles. As such, and timing matters. However, VDE does offer a few undeniable advantages for long-term investors. One of its more important advantages is that it can act as an inflation hedge, given that the energy sector often thrives when inflation ticks up, making it a handy defensive play. Moreover, VDE can also provide transition potential, as even major oil companies are pouring billions into renewables and clean energy technologies, therefore giving VDE indirect exposure to the green pivot.
Now, let’s get into the title of today’s talk and why I chose it: VDE is the equivalent of some forward-thinking energy providers that have simplified customer billing into one clear, transparent statement. How? Instead of juggling a dozen energy stocks, monitoring OPEC meetings and anxiously watching the price of crude oil, investors get one consolidated holding.
If this hasn’t piqued some courageous thinking, let’s get into the financial side of things. The fund has $9 billion in net assets and $7.4 billion in assets under management. And, while this may not be cheap, with a price-to-earnings (P/E) ratio of 16.69, it offers investors their money back with a 3.07% yield and paid out an annual dividend of $3.85 per share over the past year.
Courtesy of stockcharts.com.
This chart is a prime example of courage — sure, it isn’t perfect, but nothing is. This chart highlights VDE’s ability to pick itself up, dust itself off and move forward. While the fund is not quite at its December highs, it’s certainly close. Given its steep decline in April, VDE’s current trajectory is nothing shy of impressive.
The fund’s top 10 holdings include Exxon Mobil Corporation (NYSE: XOM), 22.89%; Chevron Corporation (NYSE: CVX), 16.01%; ConocoPhillips (NYSE: COP), 6.13%; The Williams Companies, Inc. (NYSE: WMB), 3.65%; EOG Resources, Inc. (NYSE: EOG), 3.59%; Marathon Petroleum Corporation (NYSE: MPC), 2.98%; Schlumberger Limited (NYSE: SLB), 2.85%; Phillips 66 (NYSE: PSX), 2.84%; Cheniere Energy, Inc. (NYSE: LNG), 2.80% and Kinder Morgan, Inc. (NYSE: KMI), 2.79%.
The bottom line is that the energy sector will always be volatile, but VDE makes participating in that volatility far less daunting. VDE packages the fund into, dare I say, one big, beautiful bill for investors as it offers a hefty dividend, inflation protection and exposure to the evolving energy mix.
So, I encourage courageous investors to look further into this fund, as it may be the next potential addition to a diversified portfolio.
As I write each week, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
