Is Now the Time to Buy This Energy ETF?

There are a range of options for Canadian investors to add exposure to the energy sector. The Exchange Traded Fund (ETF) space no different. In this article, I'm going to highlight one ETF which many Canadian investors may already be aware of as one of the top funds in this space, the iShares S& P/TSX Capped Energy ETF (TSX:XCA).

This ETF is a widely used proxy on the Canadian energy sector for investors seeking diversified exposure to Canada's oil patch. The holdings in this fund are indeed diversified. However, there is some concentration risk among the holdings in this ETF. I would encourage investors interested in any ETFs to look under the hood and assess the top five or ten holdings of any fund before investing, as these holdings typically provide the lion's share of returns over the long term. Within this ETF’s core holdings, I see a little too much in the way of growth companies held in higher percentage than valued companies, making me wary, personally.

The oil patch has had a very rough go since 2014, but if you're an investor bullish on growth and innovation/investment with this within the sector, this ETF is the one for you. If you’re more on the conservative end of the investing spectrum as I am, I would encourage looking at other global options in the energy sector, or those focused outside of Canada. I just see too many headwinds related to oil sands production in particular to view the Canadian energy sector as a safe long term holding today.

Invest wisely, my friends.