Exchange Traded Funds (ETFs)

ETF Talk: Strike Oil While the Market’s Hot!

The expression “strike while the iron’s hot” is not a new idiom. In fact, it dates back to the 15th century, where it originated from blacksmiths who could only work with their iron while it was, well, hot. And much like a good chunk of iron, the market is burning hot enough for us to strike — strike at oil, that is.

Oil has been seeing a resurgence in the market as of late. As the conflicts in the Middle East heat up due to Iran’s recent attack on Israel, some analysts are predicting that oil could rise to as high as $100 per barrel. That, combined with commodity exchange-traded funds (ETFs) having a potential resurgence due to inflation, creates the perfect opportunity to strike at one of the best oil ETFs on the market: the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

Opened in 2006 by BlackRock, Inc., IEO tracks a market-cap weighted index of U.S. companies in the oil and gas industry. The underlying index includes U.S. companies of various market caps that are involved in either the exploration of oil and gas, or the drilling, production, refining and supply of such products.

IEO’s top 10 holdings consist of ConocoPhillips (COP), EOG Resources, Inc. (EOG), Phillips 66 (PSX), Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), Diamondback Energy, Inc. (FANG), Hess Corporation (HES), Pioneer Natural Resources Company (PXD), Devon Energy Corporation (DVN) and Coterra Energy Inc. (CTRA). The fund’s cap-weighting structure makes it top-heavy, and its top 10 holdings comprise the majority of its overall portfolio. However, IEO is a well-managed fund, and has excellent underlying liquidity.

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Currently, the fund has an expense ratio of 0.40% and $901 million in assets under management. Over 97% of the fund’s holdings are in Energy Minerals, making this an almost entirely energy-dominated fund.

Chart courtesy of https://stockcharts.com/.

As of April 15, the oil ETF is up 6.12% in the past month, 18.95% in the last three months and 16.84% year to date. This strong performance, coupled with the current market demand, makes IEO a strong choice for those looking to add an energy investment to their portfolio.

However, even with all the potential positives, IEO might not be the right iron to strike. You should always consider your investment goals and do your due diligence before adding any stock or exchange-traded fund to your portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You 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 Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. 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.