The iShares Global Energy ETF (NYSEARCA:IXC) is being evaluated as an investment option at its current market price in this article. The author suggests that the energy sector is currently experiencing a correction and explains why they see this as an opportunity to buy in. The article goes on to detail why the author sees IXC as a good buy in comparison to other energy ETFs, citing diversification as a key factor. Additionally, the article touches on the importance of China’s economic rebound and the potential for oil demand to pick up in the region. However, the author warns of the potential risks associated with the debt ceiling debate and how it could negatively impact equity markets. Overall, the article presents a bullish view on the energy sector and recommends a “buy” rating for IXC.
Important Details about iShares Global Energy ETF: I Love Buying Corrections (Rating Upgrade) (NYSEARCA:IXC) –
– iShares Global Energy ETF (IXC) is a passively managed sector fund that tracks the investment results of an index composed of global equities in the energy sector
– The drop in crude oil prices presents a buying opportunity, and IXC is a good option for diversification and less exposure to big names in the sector.
– China’s economic rebound is likely to result in a rise in crude oil demand, which bodes well for IXC
– Energy companies have been managing their investment at a historically low level and returning cash to shareholders, which supports bullishness for the sector
– The debt ceiling debate shaping up for later this year poses a key risk for equities and the Energy sector, including IXC.
Investment Review: iShares Global Energy ETF (NYSEARCA:IXC)
The iShares Global Energy ETF (NYSEARCA:IXC) is a passively managed sector fund that aims to track the investment results of an index composed of global equities in the energy sector. In this article, we will evaluate IXC as an investment option at its current market price, particularly for those looking to add energy funds to their investment portfolio.
The recent decline in energy prices has caused many investors to become hesitant towards energy funds like IXC. However, we argue the opposite – the decline in prices presents a buying opportunity for investors to capitalize on. It is always recommended for investors to have some ownership of various sectors such as energy and utilities, and to add to them over time when the opportunity is ripe. Buying during corrections or bear market periods bodes well over time, and we see an opportunity in IXC.
Historically Large Drop in Crude
One of the key reasons we like buying energy at this moment is due to the drop in crude oil prices. Many consider Brent crude’s (a major benchmark for global oil prices) price movement since January 1 to present a significant decline of over 14%. If we consider the past two decades, there is only one other year (2020) where we saw a bigger drop through mid-March. We view this type of correction as an obvious “buy” signal. While we acknowledge that more volatility is likely and that there is a possibility of further losses, we see the current drop as an overreaction and expect a rebound to occur soon.
Why Choose IXC?
We view IXC as a good buy, particularly due to its diversification. While IXC is not the only energy ETF that we own, we believe it is the better buy at the moment. Unlike our other holding, the Vanguard Energy ETF (VDE), which lacks diversification, our preference for IXC is due to its global nature, as it has holdings in the UK, Canada, Australia, and other Western countries. We view this positively because it helps take away some concentration risk and also remains light on central/eastern European exposure. French and Italian holdings are small but present. With the Russia-Ukraine conflict showing no signs of letting up, we are generally cautious about the Eurozone, but the United Kingdom is outside of that bloc, as are Australia and Canada. Beyond geography, IXC is not as top-heavy as VDE in its holdings of Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX). While IXC is certainly quite beholden to these names, it is not as heavily tilted towards them compared to VDE.
OPEC Expects China To Fill Demand Void
Our bullishness on energy and IXC is also supported by the expected bounce in product demand from China, which we believe is positioned to lead as the US and western Europe face potential slowdowns. OPEC’s March Oil Report raised its forecast for economic growth in China while lowering it in the US and elsewhere. A rise in the Chinese economy is likely to lead to an increase in crude demand, which bodes well for a crude rebound and the underlying share prices that make up IXC.
Energy Companies’ Prudent Management
Over the past few years, energy companies have limited investment and managed cash efficiently, making them well-capitalized compared to other “flashier” sectors. While many large-cap companies have announced massive layoffs to curb costs in both 2022 and early 2023, we can see that energy companies haven’t (generally) been a part of this trend. This is a trend that we find positive and support as it indicates companies are managing investment at a historically low level and working to return cash to shareholders. These are indeed the companies that make up IXC, so we view this backdrop as support for our bullishness for the sector.
Debt Ceiling Debate Looms Large
One key risk to note is the debt ceiling debate shaping up later this year. With Republicans now in control of the House of Representatives, we see potential demands for spending cuts that Democrats and the Biden administration may be unwilling to make. If this leads to prolonged back-and-forth negotiations, it could result in a negative impact on equity markets, including energy funds like IXC.
Overall, we put a “buy” rating on IXC and encourage investors to consider it as a way to diversify their energy holdings and to take advantage of the current drop in crude oil prices. While there are risks to consider, we remain bullish on the energy sector and believe that the current decline presents a buying opportunity.