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Is SPDR S&P Oil & Gas Exploration & Production ETF (XOP) a Strong ETF Right Now?

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Designed to provide broad exposure to the Energy ETFs category of the market, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) is a smart beta exchange traded fund launched on 06/19/2006.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is sponsored by State Street Global Advisors. It has amassed assets over $3.37 billion, making it one of the largest ETFs in the Energy ETFs. This particular fund seeks to match the performance of the S&P Oil & Gas Exploration & Production Select Industry Index before fees and expenses.

The S&P Oil & Gas Exploration & Production Select Industry Index represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the US common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Oil & Gas Exploration Index is a modified equal weight index.

Cost & Other Expenses

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 cousins, other things remaining the same.

Annual operating expenses for XOP are 0.35%, which makes it one of the least expensive products in the space.

XOP's 12-month trailing dividend yield is 2.55%.

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.

XOP's heaviest allocation is in the Energy sector, which is about 100% of the portfolio.

When you look at individual holdings, Range Resources Corp (RRC - Free Report) accounts for about 2.67% of the fund's total assets, followed by Diamondback Energy Inc (FANG - Free Report) and Ovintiv Inc (OVV - Free Report) .

XOP's top 10 holdings account for about 25.88% of its total assets under management.

Performance and Risk

So far this year, XOP has added about 3.02%, and is down about -4.67% in the last one year (as of 12/05/2023). During this past 52-week period, the fund has traded between $116.28 and $153.81.

XOP has a beta of 1.78 and standard deviation of 39.30% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 61 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Oil & Gas Exploration & Production ETF is an excellent option for investors seeking to outperform the Energy ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco Energy Exploration & Production ETF (PXE - Free Report) tracks Dynamic Energy Exploration & Production Intellidex Index and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report) tracks Dow Jones U.S. Select Oil Exploration & Production Index. Invesco Energy Exploration & Production ETF has $154.57 million in assets, iShares U.S. Oil & Gas Exploration & Production ETF has $833.99 million. PXE has an expense ratio of 0.60% and IEO charges 0.40%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Energy ETFs.

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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