While not a huge fan of buying ETFs to cover a host of stocks in a sector rather than picking or choosing a few individual names myself, the oil space is one area I do like the ETF strategy, since there are so many public exploration companies and most tend to move together in our "HFT + EFT" driven market. As goes one oil stock, so shall go most of them as HAL9000 and his merry crew make a decision to move en masse to the hot new sector. Now not all ETFs are made the same and the oil space is no different - many times you will see ETFs top loaded with the big boys like Exxon (XOM), Chevron (CVX) and a few huge integrated companies. Rather than go that route a far more inclusive ETF would be something like SPDR S&P Oil & Gas Exploration & Production (XOP). Here are the top 10 holdings as of 11/30/2010. We see it is not concentrated in a few mega cap names, and indeed the top 10 holdings only make up 1/3rd of the entire portfolio. You even have some refiners thrown into the mix for a truly broad exposure to the sector. XOP is also liquid with some 3.6M units trading each day, unlike many other sector specific ETFs.
SPDR S&P Oil & Gas Exploration & Prod: Top holdings
|Company name||% Net assets|
|Atlas Energy Inc||3.76%|
|Newfield Exploration Company||3.26%|
|Concho Resources, Inc.||3.24%|
|EXCO Resources, Inc.||3.23%|
|SM Energy Co||3.19%|
|Pioneer Natural Resources Company||3.09%|
|Anadarko Petroleum Corp.||3.03%|
|Whiting Petroleum Corporation||3.02%|
|Percentage of holdings 32.25%|
How has an ETF like USO compared to an ETF like XOP? Clearly one has been the superior performer and in 2010 at least has actually surpassed the performance of the physical commodity itself.
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