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

Zacks Equity Research
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Launched on 05/01/2006, the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) is a passively managed exchange traded fund designed to provide a broad exposure to the Energy - Exploration segment of the equity market.

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 2, placing it in top 13%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $421.27 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.

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 0.43%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 1.09%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, 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 13.22% of total assets, followed by Eog Resources Inc (EOG) and Marathon Petroleum Corp (MPC).

The top 10 holdings account for about 63.54% of total assets under management.

Performance and Risk

The ETF has lost about -3.12% so far this year and it's up approximately 1.28% in the last one year (as of 11/13/2018). In that past 52-week period, it has traded between $59.09 and $78.42.

The ETF has a beta of 1.27 and standard deviation of 27.43% for the trailing three-year period, making it a high risk choice in the space. With about 70 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 sufficient 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) 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 $95.93 M in assets, SPDR S&P Oil & Gas Exploration & Production ETF has $2.63 B. PXE has an expense ratio of 0.65% 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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ISHARS-US O&G (IEO): ETF Research Reports
 
SPDR-SP O&G EXP (XOP): ETF Research Reports
 
PWRSH-DYN ENRG (PXE): ETF Research Reports
 
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
 
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
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