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The SPDR S&P Oil & Gas Exploration & Production ETF (ARCA:XOP) made its debut on 06/19/2006, and is a smart beta exchange traded fund that provides broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is managed by State Street Global Advisors, and has been able to amass over $3.66 billion, which makes it one of the largest ETFs in the Energy ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 2.31%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
XOP's heaviest allocation is in the Energy sector, which is about 100% of the portfolio.
Taking into account individual holdings, Valero Energy Corp (NYSE: VLO) accounts for about 2.70% of the fund's total assets, followed by Pbf Energy Inc Class A (NYSE: PBF) and Apa Corp (NYSE: APA).
The top 10 holdings account for about 26.52% of total assets under management.
Performance and Risk
The ETF has gained about 8.27% and is up roughly 20.54% so far this year and in the past one year (as of 06/13/2024), respectively. XOP has traded between $121.68 and $160.59 during this last 52-week period.
The fund has a beta of 1.70 and standard deviation of 35.95% for the trailing three-year period, which makes XOP a high risk choice in this particular space. With about 56 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 (ARCA:PXE) tracks Dynamic Energy Exploration & Production Intellidex Index and the iShares U.S. Oil & Gas Exploration & Production ETF (BATS: IEO) tracks Dow Jones U.S. Select Oil Exploration & Production Index. Invesco Energy Exploration & Production ETF has $140.05 million in assets, iShares U.S. Oil & Gas Exploration & Production ETF has $754.21 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.
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