Third Quarter 2021 Energy Sector Scorecard

The third quarter of 2021 closed on Sept. 30. The S&P 500 returned 1.4% for the quarter, and eight of eleven S&P 500 sectors posted a positive return. (Note that all returns discussed here are total returns, which include the effect of dividends paid).

September was an especially bad month in the markets, with the S&P 500 falling 3.7% for the month. Nine of 11 S&P 500 sectors were down in September, with the utilities sector getting hit hardest (-7.3%). The highlight of September was the energy sector, which returned 14.3% for the month.

The energy sector was the top performer in the first half on 2021, but after suffering a pullback early in the summer, the surge in September helped salvage the quarter.

The Energy Select Sector SPDR ETF (XLE) tracks an index of energy companies in the S&P 500. The XLE represents the stocks of large energy companies from different sub-sectors (e.g., integrated, oil production, equipment services). It is, therefore, a good benchmark for more conservative energy investors. Some of XLE’s biggest holdings are ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP), EOG Resources (EOG), and Schlumberger (SLB).

Over the past year, the energy sector has been the top-performing sector in the S&P 500, with a total return in the XLE of 94%. That is primarily a reflection of last year’s deep COVID-19 induced plunge. Many energy companies have yet to recover to pre-COVID-19 levels.

According to data provider FactSet — which I use to analyze companies — the average upstream company gained 7.0% in the first half of 2021. These are the companies that produce and store oil and gas. There are 58 companies that FactSet classifies as “upstream.” In that subsector, 67% recorded a positive return. ConocoPhillips, the largest company in that category, returned 12.1% for the quarter.

Among the 54 companies that FactSet classifies as “midstream,” the average return was -2.8%. Best among the group was GasLog Partners (GLOP), which generated a third quarter return of 31.2%.

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