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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.

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 10-, five- and one-year returns were -13.42%, -27.21% and -67.03%, respectively, as of March 13, 2020. The ETF has net assets of $1.62 billion. 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 are:

  1. Cabot Oil & Gas Corporation - 6.01%
  2. EQT Corporation - 4.42%
  3. Chevron Corporation - 4.20%
  4. Exxon Mobil Corporation - 3.62%
  5. Hess Corporation - 3.52%

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 0.42%. Over the past 10 years, five years, and one year, respectively, the ETF has returned -6.57%, -17.22%, and -53.1% as of March 13, 2020. IEO's benchmark is the Dow Jones U.S. Select Oil Exploration & Production Index. IEO is smaller than XOP, with assets of $110.6 million. The top holdings and their sizes proportionate to the fund are as follows:

  1. ConocoPhillips - 16.32%
  2. Phillips66 - 12.01%
  3. EOG Resources, Inc. -10.32%
  4. Valero Energy Corporation - 9.42%
  5. Marathon Petroleum Corporation- 5.03%

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 $14.12 million as of March 13, 2020. It was founded on Oct. 26, 2005, and has an expense ratio of 0.63%. The ETF has returned -8.27%, -24.71% and -67.61% over the past 10-, five- and one-year time frames.

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. Cabot Oil & Gas Corporation - 9.43%
  2. Valero Energy Corporation - 6.46%
  3. EQT Corporation - 5.48%
  4. ConocoPhillips - 5.43%
  5. Marathon Petroleum Corporation - 5.14%

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.