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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.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Investor-friendly, sector ETFs provide many options 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 1, placing it in top 6%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $562.40 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

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.42%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 2.15%.

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 17.73% of total assets, followed by Eog Resources Inc (EOG - Free Report) and Pioneer Natural Resource .

The top 10 holdings account for about 64.33% of total assets under management.

Performance and Risk

The ETF has added about 18.09% so far this year and it's up approximately 86% in the last one year (as of 02/07/2022). In that past 52-week period, it has traded between $42.58 and $74.49.

The ETF has a beta of 1.85 and standard deviation of 47.11% for the trailing three-year period, making it a high risk choice in the space. With about 52 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares U.S. Oil & Gas Exploration & Production ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, IEO is a good option for those seeking exposure to the Energy ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) tracks Dynamic Energy Exploration & Production Intellidex Index and the SPDR S&P 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 $184.84 million in assets, SPDR S&P Oil & Gas Exploration & Production ETF has $4.36 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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