The conventional method to investing in the energy sector going again a long time has usually come down to creating positive a portfolio has publicity to the “majors” — built-in oil and gas stocks like Exxon Mobil and Chevron, which have additionally paid dependable dividends.
There are instances when it hasn’t labored effectively in current historical past — corresponding to throughout the peak existential fears over the previous decade about an oil business on the approach out as a worldwide supply of energy — nevertheless it has performed fairly effectively since that panic ended. Over the previous 5 years, whether or not it is the market efficiency of Exxon Mobil, or the Energy Select Sector SPDR (XLE), returns have been robust after bottoming out.
But this yr, whilst Exxon Mobil, Chevron, and energy stocks as a class have produced constructive returns, they haven’t been the big winners for traders enjoying the energy theme of the future, in accordance with Paul Baiocchi, head of fund gross sales and technique at SS&C ALPS Advisors.
He pointed to year-to-date outflows amongst traders in XLE of roughly $7 billion, the largest and most liquid energy market ETF. Some of that could be associated to fears that the global economy will slump on account of President Trump’s commerce conflict, and as oil costs stay underneath strain, the shares of oil and gas stocks will face higher headwinds.
Performance of U.S. crude oil in 2025.
But it is also an indication of a broader change in how traders take into consideration methods to realize energy publicity.
“It speaks to the fact that advisors and investors are starting to think about energy more in terms of power than just crude oil and natural gas,” Baiocchi stated on this week’s CNBC “ETF Edge.”
“The conversation about energy is evolving beyond simply, ‘I have to own the large majors,'” he stated.
His agency has lengthy supplied a option to play a extra concentrated guess inside the broader energy sector, led by its 15 year-old Alerian MLP ETF (AMLP), which focuses on energy infrastructure corresponding to pipelines and has seen web inflows this yr.
But the story behind the flight from XLE has lots to do with the expectations for big modifications in the energy technology sector in the U.S., and a long time of transformation forward for the electrical grid as demand surges, spurred by elements corresponding to AI data centers. Some of Trump’s coverage priorities play into this pattern as effectively, together with assist for U.S. synthetic intelligence improvement in a brand new tech arms race in opposition to China, bringing manufacturing again to the U.S., and the promotion of nuclear power.
“We’re talking about incorporating nuclear in a way we haven’t in decades,” Baiocchi stated. “The mix of what generates electricity is evolving and the way investors play energy is evolving.”
Jack Clark, co-founder of AI firm Anthropic, stated at a current summit the place big tech corporations met with energy leaders that it estimates 50 gigawatts of new power is needed by 2027, equal to about 50 nuclear reactors.
While XLE has seen outflows this yr, its utilities sector comp the Utilities Select Sector SPDR (XLU), has seen inflows close to $3 billion and has tripled the efficiency of XLE, up roughly 12% this yr versus 4% for the broader energy sector.
Performance of the utilities sector of the S&P 500 versus the index’s energy sector in 2025.
According to Malcolm Dorson of Global X ETFs, who appeared alongside Baiocchi on “ETF Edge,” the investor considering on energy is altering as energy technology turns into central to “all the technologies of tomorrow” and a huge surge in demand begins.
“Not only AI, but electric vehicles and large factories, and the big picture is that the U.S. is sort of not ready for all of this,” Dorson stated. Global X has launched an ETF targeted on the theme, the Global X U.S. Electrification ETF (ZAP). “The U.S. needs to produce about 45% more electricity than it produces today by 2040, after almost two decades of stagnant demand,” he stated.
And that demand will even imply higher prices paid by electricity consumers, that are anticipated to proceed to outpace common inflation in the years forward, as they’ve since 2022. Electricity costs have almost doubled the inflation fee for all items and providers in 2025, and the U.S. Energy Information Administration estimated in May that retail electrical energy costs would outpace inflation by way of 2026.
The ETF consultants additionally weighed in on the spectacular efficiency run for worldwide stocks in 2025, sleeper markets like Argentina and Greece, whether or not it is time to take some income, and the place to put abroad bets subsequent. You can overview that debate on this week’s full ETF Edge present.
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