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

Zacks Equity Research

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), 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 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 14, placing it in bottom 13%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $225.85 M, 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.

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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 one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 2.04%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. 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) accounts for about 15.20% of total assets, followed by Phillips (PSX) and Eog Resources Inc (EOG).

The top 10 holdings account for about 70.69% of total assets under management.

Performance and Risk

Year-to-date, the iShares U.S. Oil & Gas Exploration & Production ETF has added about 1.96% so far, and is down about -10.10% over the last 12 months (as of 12/09/2019). IEO has traded between $46.40 and $62.69 in this past 52-week period.

The ETF has a beta of 1.42 and standard deviation of 24.67% for the trailing three-year period, making it a high risk choice in the space. With about 61 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 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) 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 Dynamic Energy Exploration & Production ETF has $26.51 M in assets, SPDR S&P Oil & Gas Exploration & Production ETF has $2.20 B. 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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iShares U.S. Oil & Gas Exploration & Production ETF (IEO): ETF Research Reports
 
SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
 
Invesco Dynamic Energy Exploration & Production ETF (PXE): ETF Research Reports
 
Phillips 66 (PSX) : Free Stock Analysis Report
 
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
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Zacks Investment Research