Should You Invest in the iShares U.S. Oil & Gas Exploration & Production ETF?

If you're interested in broad exposure to the Energy - Exploration segment of the equity market, look no further than the iShares U.S. Oil & Gas Exploration & Production ETF IEO, a passively managed exchange traded fund launched on 05/01/2006.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Energy - Exploration is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $731.59 million, making it one of the larger ETFs attempting to match the performance of the Energy - Exploration segment of the equity market. IEO seeks to match the performance of the Dow Jones U.S. Select Oil Exploration & Production Index before fees and expenses.

The Dow Jones U.S. Select Oil Exploration & Production Index is a free-float adjusted market capitalization-weighted index. The Index includes companies that are engaged in the exploration for and extraction, production, refining, and supply of oil and gas products.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.40%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 2.61%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Energy sector--about 100% of the portfolio.

Looking at individual holdings, Conocophillips COP accounts for about 18.30% of total assets, followed by EOG Resources Inc EOG and Marathon Petroleum Corp MPC.

The top 10 holdings account for about 70.58% of total assets under management.

Performance and Risk

So far this year, IEO has gained about 6.79%, and was up about 19.10% in the last one year (as of 07/08/2024). During this past 52-week period, the fund has traded between $85.58 and $111.94.

The ETF has a beta of 1.44 and standard deviation of 31.75% for the trailing three-year period, making it a high risk choice in the space. With about 49 holdings, it has more concentrated exposure than peers.

Alternatives

IShares U.S. Oil & Gas Exploration & Production ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, IEO is an excellent option for investors seeking exposure to the Energy ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Invesco Energy Exploration & Production ETF PXE tracks Dynamic Energy Exploration & Production Intellidex Index and the SPDR S&P Oil & Gas Exploration & Production ETF XOP tracks S&P Oil & Gas Exploration & Production Select Industry Index. Invesco Energy Exploration & Production ETF has $133.33 million in assets, SPDR S&P Oil & Gas Exploration & Production ETF has $3.43 billion. PXE has an expense ratio of 0.60% and XOP charges 0.35%.

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