eResearch | We track 12 Canadian sector ETFs and 12 U.S. sector ETFs. What we will highlight in these ETF reports is to compare and contrast the performance of selected Canadian and U.S. ETF sectors. In this report, we have chosen to analyze the Energy Sector ETFs. There are many similarities, but also some surprising differences. This allows the opportunity to try to understand why, which then opens up opportunities to benefit from the discrepancies.
Sector Analysis: Focus On Energy
The Energy Sector has, far and away, been the best-performing market sector in 2022 to date. From the start of the year, up to and including March 4, the Canadian Energy ETF, TSX: XEG, has risen 33.2%. The corresponding U.S. Energy ETF, NYSE: XLE, has gained an even higher 35.5%.
Figure 1: XEG Versus XLE
Not much to go on here when considering the respective ETFs alone. However, these ETFs reflect the underlying strength of the stocks of the entire Energy Sector in both countries and their outstanding performance since the beginning of the year. Representative Canadian and U.S. energy companies are presented in Figure 2 below.
Figure 2: Representative Canadian and U.S. Oil Companies Stock Performance 2022 To Date
The above is only a representative list and does not reflect many other companies that are included in the composition of each of the Energy Sector ETF.
But, let us go back and look at what transpired in 2021.
First, the end-of-month prices for both ETFs (left columns) and also the monthly percentage changes (right columns). We show the information in both tabular and chart forms.
Figure 3: Table of XEG and XLE 2021 End-of-Month Prices and Monthly Percentage Changes
Figure 4: Chart of XEG and XLE 2021 End-of-Month Prices and Monthly Percentage Changes
Next, we have the cumulative monthly changes in these two ETFs. Here is where there is a surprising difference. The Canadian XEG ETF did so much better than its U.S. counterpart, XLE.
Figure 5: Table of XEG and XLE 2021 Cumulative Monthly Changes
Figure 6: Chart of XEG and XLE 2021 Cumulative Monthly Changes
Conclusion: The take-away from this comparison is that ETFs can provide substantial returns. However, caution is warranted as ETFs can be very volatile. Witness the wide swings in the Monthly Changes in both XEG and XLE that are illustrated in Figure 3.
Also, as we intend to show in future reports on ETFs, they can also produce significant negative returns. In fact, to date in 2021, on the Canadian exchange, 5 of the sectors are showing positive returns between 1.1% (Financials) and 33.2% (Energy), and 7 sectors are in negative territory between -0.1% (Utilities) and -25.2% (Technology). On the major U.S. exchange, 3 sectors are positive between 7.4% (Global Gold) and 35.5% (Energy), and 9 sectors are negative between -1.0% (Utilities) and -16.1% (Consumers Discretionary).
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