Passive investors looking to take on a more contrarian position in the new year may wish to consider some of the sectors that most investors may be ignoring as the rise of the artificial intelligence (AI) boom continues. Undoubtedly, there’s more to this market than just AI or agents!

Indeed, valuations on various AI stocks have been getting frothy. And while there may be no AI bubble on the verge of bursting, one has to think that a market correction would likely see the tech sector take on amplified damage. The fastest gainers tend to be the quickest to fall when market momentum flies south and investors begin taking profits or panicking en masse.

The energy sector has not done a lot in recent years, with the popular Energy Select Sector SPDR Fund (NYSEARCA:XLE) and Vanguard Energy Index Fund ETF (NYSEARCA:VDE) moving sideways over the past two years, gaining 0.2% and 1.6%, respectively. Undoubtedly, the energy sector basically sat out the booming bull market in the S&P 500. The big question for 2025 and beyond is whether the energy plays will be in a spot to make up for lost time under the Trump administration, which is all about “Drill, Baby, Drill.”

In any case, if you’re looking for contrarian value opportunities, the energy scene may have what you’re looking for. Should the market turn lower, led by a souring of AI stocks (could the recent DeepSeek dive be the start of something unfolding in the coming months?), perhaps the energy names, which haven’t done a lot of late, could be spared from most of the damage. Heck, they may even gain in the face of stock market volatility.

Let’s stack up the XLE and VDE ETFs to see which may be the better buy for investors looking to energize their portfolio with relative value.

Energy Select Sector SPDR Fund (XLE)

The XLE is a low-cost way (0.09% expense ratio vs. 0.10% for the VDE) to play some of the larger energy giants in the U.S. market. If you’re a big fan of big oil and their sizeable dividends and cash flows, the XLE will probably be a better pick for you. Additionally, you’re getting a tad more yield with the XLE, which boasts a 3.36% yield at the time of writing.

While I don’t think you can do wrong with either popular energy sector ETF, I do think that it ultimately comes down to whether investors want a heavier weighting to the top names or broader exposure to the sector.

With around 22% weighed to Exxon Mobil (NYSE:XOM) alone, you’re getting an uncommonly large weighting to a single holding. If you’re comfortable with that, the XLE is a top pick to bet on Big Energy’s continued dominance as they leverage their economies of scale.

Vanguard Energy Index Fund ETF (VDE)

As is typical with most Vanguard ETFs, you’re gaining greater diversification across stocks of various different market caps. Indeed, if you think the junior energy firms will also prosper under four years of President Trump, the VDE should be your go-to option.

Personally, I like the portfolio composition a bit better, with more than 100 holdings in the ETF versus two dozen for the XLE. Despite the larger number of names, you’re still getting a top-heavy fund, one that’s 21% weighted to energy behemoth Exxon Mobil. With a very close correlation and ample overlap, I don’t expect a vast difference in performance over the year ahead.

If I had to pick one ETF, I’d go with the XLE simply because Trump’s pro-energy policies could be more of a needle-mover for the behemoths in the space. Additionally, the smaller-cap plays will be more sensitive to interest rates. And with the Fed pausing its cuts for now, questions linger as to whether a more hawkish tilt will be in the cards moving forward. I think it could be as the Fed prepares for risks, like tariffs, that could heat up inflation again.

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