It has, of late, become abundantly clear – as if the subtle tremors of the market weren’t enough of a hint – that certain events in the vicinity of Iran have stirred the oily waters. The predictable result? A surge in the price of things dug up, refined, and burned. One almost suspects a pattern.1 And where there’s a surge, naturally, there are those eager to offer you a piece of the action, conveniently packaged and labelled ‘opportunity.’
Exchange-traded funds – ETFs, to those in the know, or those pretending to be – are, essentially, a way of spreading your bets without the bother of actually knowing what you’re betting on. It’s a bit like throwing darts at a map of the world and declaring yourself an explorer. The question, then, isn’t so much “Which ETF is best?” as “Which ETF will lose the least when the inevitable happens?”
Owning the Behemoths (and Hoping They Don’t Sink)
There are, as always, several options. But the State Street Energy Select Sector SPDR ETF (XLE 1.28%) seems, shall we say, marginally less ill-advised than most. It’s a collection of 22 of the largest companies involved in the extraction and processing of subterranean combustibles. Think of it as a lifeboat, constructed primarily from the hulls of very large ships.
A significant portion of this particular vessel is held together by three particularly substantial companies: ExxonMobil (XOM 1.53%), Chevron (CVX 1.60%), and ConocoPhillips (COP 2.49%). These aren’t small enterprises, you understand. They are, in fact, so large that their accountants require their own dedicated constellations. They collectively account for nearly half the ETF’s holdings.
Currently, the ability to get oil out of the ground and to refineries is at a premium. The aforementioned Strait of Hormuz is, let’s say, experiencing a period of heightened… inconvenience. This naturally benefits those who can produce oil domestically, specifically in the Permian Basin. ExxonMobil, Chevron, and ConocoPhillips are, unsurprisingly, rather prominent players in that little drama. It’s a bit like being the only blacksmith in a kingdom suddenly at war.
The performance of these three giants, and indeed the ETF itself, has been… enthusiastic, shall we say. A rise of over 20% year-to-date is… notable. Though one should remember that what goes up must eventually… well, you know.2
A Slightly Less Fragile Illusion?
No one, and I mean no one, possesses a crystal ball. The situation in the Middle East is… fluid. And when things are fluid, they tend to splash. It’s entirely possible that the price of oil, and consequently these energy stocks, could plummet faster than a goblin down a well. The State Street Energy Select SPDR ETF, at least, offers a degree of insulation. It’s not a guarantee, of course. Nothing is. But it’s marginally less likely to vanish in a puff of smoke than, say, a fund specializing in unicorn tears.
These aren’t nimble startups. They are integrated oil and gas companies, involved in everything from digging holes in the ground to selling petrol to disgruntled motorists. If the price of oil drops, they have other avenues to explore. Smaller companies, less diversified, will likely suffer more acutely. It’s a matter of scale, and the ability to absorb losses without entirely collapsing.
Furthermore, this fund isn’t outrageously expensive. Its price-to-earnings ratio is a relatively modest 20x, which is significantly lower than the S&P 500 (^GSPC 0.21%)’s 29x. This doesn’t mean it’s cheap, mind you. Just less… exuberantly priced.
Finally, the State Street Energy Select SPDR ETF pays a distribution yield of 2.6%. Which is, admittedly, not enough to retire on. But it’s a small consolation prize while you watch the world burn. Or, more accurately, while you wait for the price of oil to inevitably correct itself.
- 1 One suspects a pattern, indeed. A pattern of escalating conflict, followed by a surge in the price of fossil fuels, followed by increased profits for a select few. It’s a remarkably consistent pattern, really.
- 2 The laws of gravity, it seems, still apply, even to financial markets. Though some investors appear to believe they can defy them with sufficient enthusiasm.
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2026-03-11 10:55