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Should You Invest in the iShares U.S. Oil Gas Exploration Production ETF (IEO)?

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Looking for broad exposure to the Energy - Exploration segment of the equity market? You should consider the iShares U.S. Oil Gas Exploration Production ETF (IEO - Free Report) , a passively managed exchange traded fund launched on 05/01/2006.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many 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 9, placing it in bottom 44%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $296.28 million, making it one of the average sized 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

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.42%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 3.19%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many 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 - Free Report) accounts for about 16.49% of total assets, followed by Phillips (PSX - Free Report) and Eog Resources Inc (EOG - Free Report) .

The top 10 holdings account for about 71.46% of total assets under management.

Performance and Risk

Year-to-date, the iShares U.S. Oil Gas Exploration Production ETF has lost about -39.83% so far, and is down about -36.15% over the last 12 months (as of 07/28/2020). IEO has traded between $19.12 and $56.83 in this past 52-week period.

The ETF has a beta of 2.11 and standard deviation of 41.40% for the trailing three-year period, making it a high risk choice in the space. With about 44 holdings, it has more concentrated exposure than peers.

Alternatives

IShares U.S. Oil Gas Exploration Production ETF sports a Zacks ETF Rank of 5 (Strong Sell), which is based on expected asset class return, expense ratio, and momentum, among other factors. IEO, then, is not a suitable option for investors seeking exposure to the Energy ETFs segment of the market. However, there are better ETFs in the space to consider.

Invesco Dynamic Energy Exploration Production ETF (PXE - Free Report) tracks Dynamic Energy Exploration & Production Intellidex Index and the SPDR SP Oil Gas Exploration Production ETF (XOP - Free Report) tracks S&P Oil & Gas Exploration & Production Select Industry Index. Invesco Dynamic Energy Exploration Production ETF has $18.78 million in assets, SPDR SP Oil Gas Exploration Production ETF has $2.34 billion. PXE has an expense ratio of 0.63% and XOP charges 0.35%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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