Investors dropped energy stocks like so many hot potatoes as crude-oil prices plummeted 55% from their highs in the summer of 2014. As a result, Standard & Poor’s Energy index sank 21% over the period, lagging the broad S&P 500-stock index by a remarkable 28 percentage points.
But if you’re a believer in Warren Buffett’s axiom that you should be greedy when others are fearful, you might view this as a good time to pick up some energy stocks. “When energy falls this quickly, it tends to stabilize and then continue its climb,” says Todd Rosenbluth, a senior director at S&P Capital IQ.
Rather than try to identify individual winners, your best bet may be to buy an energy-sector fund. A solid, low-cost choice is Vanguard Energy ETF(VDE). The exchange-traded fund tracks an index of companies that cover a broad swath of the industry, from oil-rig builders and drill-equipment makers to oil refiners and transportation companies. The fund’s 168 holdings are weighted by stock market value—the bigger a stock’s capitalization, the bigger its position in the fund—so behemoths ExxonMobil and Chevron account for more than one-third of the ETF’s assets. But shares of “big oil” tend to hold up better than the overall sector, in part because they operate across the many segments of the industry. As a result, the ETF has been 21% less volatile than its peers over the past three years.
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