Is SPDR S&P Oil & Gas Exploration & Production ETF (XOP) a Strong ETF Right Now?

A smart beta exchange traded fund, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) debuted on 06/19/2006, and offers broad exposure to the Energy ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as 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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is sponsored by State Street Global Advisors. It has amassed assets over $4.53 billion, making it one of the largest ETFs in the Energy ETFs. XOP, 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

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 0.35%, making it one of the least expensive products in the space.

The fund has a 12-month trailing dividend yield of 1.63%.

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.

Representing 100% of the portfolio, the fund has heaviest allocation to the Energy sector.

When you look at individual holdings, Occidental Petroleum Corporation (OXY) accounts for about 2.98% of the fund's total assets, followed by Apa Corp. (APA) and Marathon Oil Corporation (MRO).

XOP's top 10 holdings account for about 23.92% of its total assets under management.

Performance and Risk

The ETF return is roughly 28.28% so far this year and it's up approximately 29.98% in the last one year (as of 06/28/2022). In the past 52-week period, it has traded between $72.88 and $169.15.

XOP has a beta of 1.98 and standard deviation of 56.39% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 62 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 Dynamic Energy Exploration & Production ETF (PXE) tracks Dynamic Energy Exploration & Production Intellidex Index and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) tracks Dow Jones U.S. Select Oil Exploration & Production Index. Invesco Dynamic Energy Exploration & Production ETF has $321.71 million in assets, iShares U.S. Oil & Gas Exploration & Production ETF has $873.55 million. PXE has an expense ratio of 0.63% and IEO charges 0.42%.

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.

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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SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
 
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
 
APA Corporation (APA) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
iShares U.S. Oil & Gas Exploration & Production ETF (IEO): ETF Research Reports
 
Invesco Dynamic Energy Exploration & Production ETF (PXE): ETF Research Reports
 
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