Energy ETF XEG.TO

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When I first started investing on my own I went with mostly ETFs. I have a position in the iShares S&P/TSX Capped Energy Index ETF XEG.TO. I bought in at different levels and I added to my positions when it tanked during the pandemic. Now that I have been buying more stocks I thought I would have a look at the holdings of this ETF:
CNQ – CANADIAN NATURAL RESOURCES LTD Energy CAD 241,210,241.24 24.18 241,210,241.24
SU – SUNCOR ENERGY INC Energy CAD 233,171,425.80 23.37 233,171,425.80
CVE – CENOVUS ENERGY INC Energy CAD 137,489,101.62 13.78 137,489,101.62
IMO – IMPERIAL OIL LTD Energy CAD 74,910,880.80 7.51 74,910,880.80
TOU – TOURMALINE OIL CORP Energy CAD 70,082,086.14 7.02 70,082,086.14
PXT – PAREX RESOURCES INC Energy CAD 35,009,470.04 3.51 35,009,470.04
ARX – ARC RESOURCES LTD Energy CAD 33,319,245.40 3.34 33,319,245.40
CPG – CRESCENT POINT ENERGY CORP Energy CAD 31,527,453.73 3.16 31,527,453.73
PSK – PRAIRIESKY ROYALTY LTD Energy CAD 30,742,926.39 3.08 30,742,926.39
VII – SEVEN GENERATIONS ENERGY LTD CLASS Energy CAD 28,593,057.08 2.87 28,593,057.08
On a positive note, I have not been duplicating my positions (I do not currently own any of these stocks individually).

I am considering the idea of selling my position in XEG.TO and using the funds to buy a position in a couple of the names in this fund. I will not have to take a loss on the sale do that is a bonus.

In a recent ETF video you mentioned it is better to buy the individual stocks rather than the ETF (example was the equal weight Canadian Banks ETF). I will not have the funds to purchase positions in all companies so I would not really be doing as you suggest so maybe this is a poor idea.

Assuming you would also consider selling the ETF and taking a couple of positions what are your thoughts on potential positions? I am leaning toward:
CNQ, SU, IMO, ARX or TOU.

Would love your thoughts.

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Asked on February 24, 2021 10:30 am
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Private answer

Keep in mind, I state that it is better to buy the individual stocks rather than the ETF in ZEB because ZEB only contains 6 holdings. XEG contains 14 I believe, so there is a little more merit to holding the ETF over individuals.

I'm kind of indifferent to keeping the ETF vs going individual. For one, junior producers could outperform seniors in a pricing recovery, so you'd benefit from the junior ones in the ETF. Whereas if you sold and just took positions in the senior producers (CNQ,TOU,SU,IMO) you'd likely have less potential upside, but more stability.

The ETF is expensive though at 0.55% so it's hard to say. This is a difficult decision. But, it's also one that really shouldn't impact your overall returns detrimentally over the long term. Holding this ETF or selling it to buy senior producers, I really don't think you're going to notice a significant outperformance going either way.

However, you will save on fees, and have more dividend yield by buying the stocks you mentioned.

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Posted by Dan Kent
Answered on February 24, 2021 12:20 pm
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