Accessing Oil and Gas Services

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

“Everything in life is somewhere else, and you get there in a car.” — E. B. White

Given the recurring political instability in the Middle East and concerns about the planet, it is no surprise that oil and gas stocks crashed in 2014. Things were not much better in late 2019 because even though energy stocks were up 5.8% on the year, according to John Divine of U.S. News and World Report, their success paled against the 27.3% gains of the S&P 500 over the same period of time.

However, on the eve of a new year and a new decade, and with positive global growth and OPEC production cuts on the horizon, it is within the bounds of the imagination for oil stocks to finally rebound. Investors who want to get back into oil stocks but are risk-adverse, since oil prices (and oil stocks) are quite fickle, might want to consider exchange-traded fund funds (ETFs) that track this sector instead.

One of the ETFs that can provide investors with access into the world of oil and gas stocks is the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP).

This ETF tracks an equal-weighted index of companies in the U.S. oil and exploration and production sector. The fact that it provides an equal-weight approach to both oil and gas production and exploration is a way to get around the problem that the industry in question is dominated by a few very large companies. The downside to this approach is that the fund is strongly biased towards small- and mid-cap stocks.

This fund’s top holdings include WPX Energy Inc. (NYSE: WPX), Apache Corporation (NYSE: APA), Whiting Petroleum Corp. (NYSE: WLL), EQT Corporation (NYSE:EQT), Callon Petroleum Company (NYSE:CPE), EOG Resources, Inc. (NYSE: EOG) and Noble Energy, Inc. (NASDAQ: NBL).

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This fund’s performance has been solid in the short run but less than ideal in the long run. As of 12/27/2019, XOP is up 12.67% over the past month and up 4.36% over the past three months. It is currently down 10.62% year to date.

The fund has $2.77 billion in assets under management and an expense ratio of 0.35%, meaning that it is more expensive to hold in comparison to some other ETFs.

Chart courtesy of www.stockcharts.com

In short, while XOP does provide an investor with a chance to profit from the world of oil and gas stocks, the sector may not be appropriate for all portfolios. Thus, interested investors always should conduct their own due diligence and decide whether the fund is suitable for their investing goals.

 

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