Most Common Oil and Gas ETFs

If you're looking to invest in oil and gas companies, a sector ETF may be a low-cost way to get that exposure. The three most popular exchange-traded funds (ETFs), that track the oil and gas drilling sector are the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO), and the Invesco Dynamic Energy Exploration & Production Portfolio (PXE). Here, we take a closer look at these ETFs.

Understanding Oil & Gas ETFs

Oil and gas ETFs are one way investors can diversify their portfolio and invest in the oil and gas industry. These ETFs can hold a diversified portfolio of stocks of companies involved in various aspects of the oil and gas industry such as exploration, production, refining, and distribution.

In some cases, the performance of oil and gas ETFs are closely tied to the overall health of certain markets. For instance, the energy market can be influenced by politics or major natural events. Oil and gas ETFs aren't just representative of how certain companies are performing; they can represent broader macroeconomic trends of how the economy is going. For this reason, investors may take note and find the following three ETFs particularly interesting compared to other types of ETFs.

The SPDR S&P Oil & Gas Exploration & Production ETF

XOP was created on June 19, 2006, and has an expense ratio of 0.35%. The ETF's one-year return was -6.8%, five-year return was 3.28%, and ten-year return was -5.02% as of November 30, 2023. The ETF has net assets of $3.4 billion as of December 6, 2023. Its benchmark is the S&P Oil & Gas Exploration & Production Select Industry Index. The top holdings of the fund and their percentage of total assets as of December 6, 2023 are:

1. Phillips 66 - 2.98%
2. Chord Energy Corp - 2.81%
3. Southwestern Energy Co. - 2.77%
4. Diamondback Energy Inc. - 2.74%
5. Pioneer Natural Resources Co. - 2.71%

The iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund

IEO was founded on May 1, 2006, and has a management expense ratio of 0.40%. As of November 30, 2023 , the ETFs return over the past year was -3.91%, five years was 45.74%, and 10 years was 3.63%. IEO's benchmark is the Dow Jones U.S. Select Oil Exploration & Production Index. IEO is smaller than XOP, with assets of $801 million. The top holdings and their sizes proportionate to the fund are as follows:

1. ConocoPhillips - 19.46%
2. EOG Resources Inc. - 10.25%
3. Marathon Petroleum Corporation- 8.42%
4. Pioneer Natural Resource - 7.61%
5. Phillips - 5.38%

The Invesco Dynamic Energy Exploration & Production Portfolio

The smallest of the three most commonly traded ETFs in the oil and gas drilling sector is the PXE, with assets of just $21.5 million as of September 30, 2023. The fund was founded on Oct. 26, 2005, and has a net expense ratio of 0.60%. The ETF returned -2.57% over one year, 11.21% over five years, and 2.06% over ten years as of November 30, 2023.

This ETF is more volatile than a broad-based index such as the S&P 500, which has ETFs like SPY tracking it. The benchmark for PXE is the Index Dynamic Energy Exploration & Production Intellidex Index. Its top holdings are:

1. Phillips 66 - 5.62%
2. Valero Energy Corp - 5.22%
3. Marathon Petroleum Corp - 5.10%
4. Devon Energy Corp - 5.03%
5. Diamondback Energy Inc - 4.98%

The Bottom Line

The oil and gas industry has been under strain over the past few years, with relatively low oil prices and an increase of supply. Expectations for future growth of these ETFs must thus be tempered with an appreciation of the impact of the fluctuating price of oil and the resistance level of the commodity.