Back to top

Image: Bigstock

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

Read MoreHide Full Article

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 - Free Report) , 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.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Energy - Exploration is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 3, placing it in top 19%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $207.47 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

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 0.42%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 3.60%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, 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 - Free Report) accounts for about 16.16% of total assets, followed by Phillips (PSX - Free Report) and Eog Resources Inc (EOG - Free Report) .

The top 10 holdings account for about 68.32% of total assets under management.

Performance and Risk

The ETF has lost about -40.95% and is down about -42.10% so far this year and in the past one year (as of 06/16/2020), respectively. IEO has traded between $19.12 and $56.83 during this last 52-week period.

The ETF has a beta of 2.10 and standard deviation of 40.57% for the trailing three-year period, making it a high risk choice in the space. With about 56 holdings, it effectively diversifies company-specific risk.

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 great choice 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 million in assets, SPDR SP Oil Gas Exploration Production ETF has $1.98 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.

Published in