Investing

ETF Watch: Refiners Play Small Role in Energy ETFs (COP, XLE, VDE, XOP, IXC)

Today’s announcement by ConocoPhillips Corp. (NYSE: COP) that it would spin off its refining and marketing business has pushed the company’s share price up nearly 8% at the opening bell. Refining crude oil and sending it on its way never gotten a lot of attention when included inside an integrated company like Conoco.

Refining operations do figure into the overall share price of companies like Conoco, Exxon, and Chevron, of course, but their biggest impact in the news is when refining can’t provide income or the refinery catches fire. Pure-play refiners don’t get much respect in the larger energy ETFs either. We looked at the Energy Select Sector SPDR (NYSE: XLE), the Vanguard Energy ETF (NYSE: VDE), the SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP), and the iShares S&P Global Energy ETF (NYSE: IXC) to try to figure out if Conoco’s split will have much impact on the funds.

The Energy Select Sector SPDR (NYSE: XLE) holds about $8.8 billion in assets and counts Conoco as one of its top four holdings, trailing Exxon, Chevron, and Schlumberger. The fund holds shares in Valero, Tesoro, and Marathon Petroleum, the new refining company formed when Marathon Oil spun out its refining and marketing operations. The Conoco announcement is probably responsible for the greater than 1% increase in the fund’s share price so far today. XLE gets a 4-star rating from Morningstar.

The Vanguard Energy ETF (NYSE: VDE) holds assets totaling about $2 billion, and its top five holdings are identical with XLE’s. The fund holds shares in the same refiners as XLE, and in addition has taken a small stake in HollyFrontier, recently formed from the merger between Holly Corp. and Frontier Oil. Shares in VDE are up about 0.7% today. The fund gets a 5-star rating from Morningstar.

The SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP) posts total assets of about $863 million. This is an equal-weighted fund, and its top holding is Western Refining, with a weight of 1.71% of assets. HollyFrontier is its third-largest holding and Tesoro is ranked tenth. XOP’s shares are also trading up today, by about 0.5%. The fund gets a 4-star rating from Morningstar.

The iShares S&P Global Energy ETF (NYSE: IXC) holds assets totaling about $1.3 billion, but unlike the other funds invests only about 67% of its assets in North American stocks, compared with at least 98% in the other funds. It does hold refining stocks, with its stake in Valero being the largest, at 0.53%. The fund gets a 4-star rating from Morningstar.

The split up of Conoco will benefit these funds, and others like them, both today and again when the spin off is completed. Of course, a lot depends on the final details of how many shares in the new Conoco refining company will be issued for each share of Conoco. But if crude prices and pump prices remain high, these ETFs should see another gain when the Conoco deal is finally completed.

Paul Ausick