iShares S&P/TSX Capped Energy Index ETF (XEG.TO)

If you believe that oil is on sale, is there an ETF, US or Canadian, that has been beaten down worse than the others, and is this an opportunity? There are a couple that you could look at. iShares S&P/TSX Capped Energy (XEG-T) and BMO S&P/TSX Oil and Gas (ZEO-T). These are very similar, so either one. On the other hand, you could go into the US and pick up SPDR Energy (XLE-N), which has not been slaughtered quite as badly as the Canadian stuff.

If you have a longer term horizon of 3-5 years then it is a no-brainer to overweight the energy sector. ZEO-T would alternatively not contain so much of the majors. The smaller ones of the bigger ones have more impact. This one should outperform the larger cap names. It is equally weighted instead of market cap weighted.

(A Top Pick Oct 15/13. Down 0.15%.) He is looking at this again and has bought a little and getting set to buy more. (See Top Picks.)

(A Top Pick Aug 30/13. Up 26.48%.) This has always been one of his holdings. A couple of years ago there was a huge differential between world prices and Canadian prices, $30 or $40. Now with the rail delivering oil, it is not as critical an issue now.

(A Top Pick July 5/13. Up 32.64%.) There was some pullback in the last few days because Libyan oil is coming on stream, and there is more and more US self-sufficiency. Nevertheless, he still likes this.

Thinks the energy sector is high but he has been saying that for months. We are now seeing it correct. Thinks oil prices are heading back to low to mid $90s this year.

Energy stocks in Canada typically do very well from October right through until around May. The index and the units have rolled over in the last little while, and have gone below the 20 day moving average. Good news is that the next period of seasonal strength for Canadian energy starts right around the last week in July and goes through until October. Technicals are not positive yet, so watch for them to start normalizing.

This is an energy holding for people who don’t really know the industry, and just want to top up an existing portfolio. Has a heavy weighting in the big stocks. 13 holdings make up 73% of the portfolio. Suncor (SU-T) and Canadian Natural Resources (CNQ-T) make up 32% of the portfolio. There are also some junior companies in there. This gives you broad exposure.

5 and 10 years out the futures market is pricing oil at $80. So the average revenue for the industry is probably not going up. The energy sector is not wonderful going forward, although we are seeing recovery in the oil sands sector in Canada. Prefers ETFs with covered call strategies, but you should get them 5-10% cheaper in the summer.

If we look five years into crude oil we are pricing $75 to $80 (futures), but in the last two weeks oil has gone nowhere but up.

Canadian currency is helping all the companies, no matter who they are. Keep in mind that they are cyclical. He tends to refrain from picking cyclicals because, in any one-year timeframe, they are going to be either up or down. He typically looks for companies that have a 20% slope on their charts.

ZEO-T is equally weighted and XEG is market cap weighted. Both are fine. You get 3% out of energy. Energy prices are not sustainable. He would not add new money here. You want to buy and accumulate on weakness but not now where there is strength.

There are some positive tailwinds, as well as some negative issues in the energy space. The situation going on in China is rolling back directly to what is going to be happening in the Canadian space. China is very complicated and not well understood. Looks like things are stabilizing and getting better. The massive US new found renaissance of energy independence is also creating a bit of a headwind. Differentials between the Canadian oil patch space and crude has caused a bit of an issue. With the Cdn$ coming down, valuations are very interesting. Technically stocks are starting to break out but he is solidly neutral on the whole space. You should be safe with this one.

Likes this because it has been a laggard for a while. Paying a pretty good dividend right now. Spread has narrowed quite a bit between Canadian producers and world prices. They’re getting the stuff to market.

Seasonal period has ended for energy. This one is holding up all right relative to what is happening in the oil market but not something he would be interested in. He would look to get into this later on in January as a seasonal run starts in February.