It’s conventional wisdom that investors should never try to pick a market bottom because no one knows for sure where the bottom is. So why are investors piling into energy ETFs?
TrimTabs, an independent research service that covers liquidity in the U.S. stock market, reports that energy-related ETFs have pulled in $1.2 billion during the first 20 days of market — or 20.5% of assets — even though their prices fell 7.2%. In January, those ETFs pulled in even more — $1.6 billion — while their prices fell 11%, according to TrimTabs.
“From a contrarian perspective, persistent bottom fishing in an asset class that’s selling off hard points to lower prices,” said Davis Santschi, TrimTabs CEO. “We advise steering clear of commodities, particularly oil and natural gas.”
That’s good advice, but it is possible that oil prices may have bottomed. Since falling to a low of $46.05 a barrel on March 17, U.S. West Texas intermediate oil futures have rebounded 11% to close at $51.34 on Thursday. Oil prices gained almost 5% Thursday after Saudi Arabia and its allies launched airstrikes in Yemen to support the current Yemeni government against Iranian-backed Houthi rebels.
Although Yemen itself produces very little oil, almost 7% of all global oil trades pass by its coast, according to the U.S. Energy Information Administration.