Drilling for an Oil and Gas ETF

The energy market is facing what is popularly called a “Catch-22.”

While the worldwide desire to shift to cleaner sources of energy to preserve the standard of living that people have grown accustomed to has put pressure on energy stocks, the global supply-chain shortage caused by Russia’s war against Ukraine and new outbreaks of COVID-19 around the world have sent energy stocks still higher. As a result of this paradox, investors will likely remain interested in energy companies for the foreseeable future.

While many exchange-traded funds (ETFs) in the oil and gas sector focus on futures contracts or companies that provide the equipment and services that are needed for the oil and gas fields to operate, others focus on the exploration and production that is necessary to bring “black gold” out of the ground. One such ETF is the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP).

Specifically, XOP tracks an equally weighted index, namely the S&P Total Market Index, in the U.S. oil and gas production space and includes companies that engage in the exploration, refining and marketing parts of the oil and gas production process. While the fund’s weighting strategy avoids overexposure to the big-name stocks in the field, the flip side of this decision is that the fund favors mid-cap and small-cap stocks.

Currently, the fund’s top holdings include EQT Corporation (NYSE: EQT), Southwestern Energy (NYSE: SWN), Antero Resources Corp. (NYSE: AR), Hess Corporation (NYSE: HES), Range Resources Corp. (NYSE: RRC), CNX Resources (NYSE: CNX), Centennial Resource Development Inc. (NASDAQ: CDEV) and Coterra Energy Inc. (NYSE: CTRA).

As of April 13, XOP has been up 10.39% over the past month and up 27.01% for the past three months. It is currently up 45.46% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $5.64 billion in assets under management and has an expense ratio of 0.35%.

While XOP does provide an investor with a way to profit from oil and gas companies, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.