U.S. Markets close in 5 hrs 51 mins

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

Sweta Killa
Comtech Telecommunications (CMTL) closed the most recent trading day at $26.47, moving +1.26% from the previous trading session.

If you're interested in broad exposure to the Energy - Exploration segment of the U.S. equity market, look no further than the iShares U.S. Oil & Gas Exploration & Production ETF (IEO), a passively managed exchange traded fund launched on 05/01/2006.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways 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 5, placing it in top 31%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $440.60 M, making it one of the larger ETFs attempting to match the performance of the Energy - Exploration segment of the U.S. 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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.44%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 0.90%.

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 11.05% of total assets, followed by Eog Resources Inc (EOG) and Valero Energy Corp (VLO).

The top 10 holdings account for about 59.77% of total assets under management.

Performance and Risk

The ETF has gained about 14.30% and is up roughly 27.82% so far this year and in the past one year (as of 05/15/2018), respectively. IEO has traded between $50.70 and $74.07 during this last 52-week period.

The ETF has a beta of 1.19 and standard deviation of 28.31% for the trailing three-year period, making it a high risk choice in the space. With about 65 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 reasonable 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.

VanEck Vectors Unconventional Oil & Gas ETF (FRAK) tracks MVIS Global Unconventional Oil & Gas Index and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) tracks S&P Oil & Gas Exploration & Production Select Industry Index. VanEck Vectors Unconventional Oil & Gas ETF has $84.79 M in assets, SPDR S&P Oil & Gas Exploration & Production ETF has $3.03 B. FRAK has an expense ratio of 0.54% 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.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ISHARS-US O&G (IEO): ETF Research Reports
 
SPDR-SP O&G EXP (XOP): ETF Research Reports
 
VANECK-UNC O&G (FRAK): ETF Research Reports
 
Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research