The Energy sector ranks eighth out of the 10 sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on an aggregation of ratings of 20 ETFs and 98 mutual funds in the Energy sector as of October 9, 2014. Prior reports on the best & worst ETFs and mutual funds in every sector are here.
Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 164). This variation creates drastically different investment implications and, therefore, ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst ETFs and mutual funds, which allocate too heavily to Neutral-or-worse-rated stocks.
To identify the best and avoid the worst ETFs and mutual funds within the Energy sector, investors need a predictive rating based on (1) the stocks ratings of the holdings, (2) the all-in expenses of each ETF and mutual fund, and (3) the fund’s rank compared to all other ETFs and mutual funds. As a result, only the cheapest funds with the best holdings receive Attractive or better ratings. Investors need not rely on backward-looking ratings. My fund rating methodology is detailed here.
Investors should not buy any Energy ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, buy a basket of Attractive-or-better rated stocks to avoid paying undeserved fund management fees. Active management has a long history of not paying off. My report on the number of good stock in this sector is here.
Get my ratings on all ETFs and mutual funds in this sector on my mutual fund and ETF screener.
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