XOP - IGE: Largely Energy And Worth A Look

2023-11-09 12:00:19 ET

Summary

• The iShares North American Natural Resources ETF is a strong exchange-traded fund for investors looking to gain exposure to North American companies in the natural resources sector.
• The IGE ETF has a low expense ratio of 0.41% and holds a diverse range of companies involved in the exploration, production, or distribution of natural resources.
• The fund's top holdings are concentrated in the energy sector, and while it has lagged behind pure play energy funds, it offers a more diversified option for investors.

I'm a fan of the commodity cycle thesis, and there are some good exchange-traded funds, or ETFs, to play the equity side. The question always boils down to timing and time frame. The iShares North American Natural Resources ETF ( IGE ) is a strong exchange-traded fund that seeks to track the investment results of an index composed of North American equities in the natural resources sector. This ETF provides investors with exposure to U.S. companies that produce and distribute commodities and commodity-related products. It's worth a look.

Fund Overview

IGE, managed by BlackRock, invests in a diverse range of companies involved in the exploration, production, or distribution of natural resources, primarily based in North America. These include producers of oil, gas, and consumable fuels; providers of energy equipment and services; metals and mining companies; manufacturers of paper and forest products; and producers of construction materials, containers, and packaging.

IGE has net assets amounting to approximately $571.96 million. It has been in operation since October 22, 2001, and it trades on the CBOE BZX Exchange. The fund's expense ratio is 0.41%, which is relatively low considering the industry average. The fund's performance is reflective of the broader energy market, with its price closely tied to the fluctuations in the price of oil and other natural resources. Its performance is also influenced by macroeconomic factors, such as changes in interest rates, inflation, and economic growth.

Top Holdings

IGE holds a total of 119 individual stocks, with the top holdings concentrated in the energy sector. The fund's top five holdings are:

1. Exxon Mobil Corp ( XOM ): 9.67% - one of the world's largest publicly traded international oil and gas companies, dedicated to providing fuels, chemicals, and innovative energy solutions, while emphasizing ethical standards, good governance, and a commitment to a lower-emission future.
2. Chevron Corp ( CVX ): 9.07% - a leading global energy company that engages in integrated energy and chemical operations, exploring for oil and natural gas, refining and marketing gasoline, producing chemicals, and serving clients worldwide, while striving to meet the growing global demand for energy.
3. ConocoPhillips ( COP ): 4.46% - a global energy corporation that explores, produces, transports, and markets crude oil, natural gas, and other related products, with significant operations in regions including North America, Europe, Asia, Australia, and Canada, and a commitment to achieving net-zero operational emissions by 2050.
4. Schlumberger Ltd ( SLB ): 3.34% - a global technology leader providing reservoir characterization, drilling, production, and processing solutions to the energy industry, committed to operational decarbonization and offering Transition Technologies for a net-zero future.
5. EOG Resources, Inc. ( EOG ): 3.15% - a Houston-based energy company specializing in hydrocarbon exploration and production, with key producing areas in New Mexico, Texas, and the Republic of Trinidad and Tobago, and estimated proved reserves of 3.219 billion barrels of oil equivalent as of 2020.

These five companies account for over 29% of the ETF's total assets, indicating a high level of concentration in the energy sector.

Peer Comparison

When compared to other ETFs, IGE stands out due to its focus on North American companies and its exposure to the natural resources sector. But it has lagged pure play energy funds like the SPDR S&P Oil & Gas Exploration & Production ETF ( XOP ) and the Energy Select Sector SPDR Fund ( XLE ). Not a bad thing, just something to keep in mind.

Conclusion: A Potential Long-Term Investment with Short-Term Risks

The iShares North American Natural Resources ETF offers investors the opportunity to gain exposure to natural resources, which could be beneficial in the current market environment. However, the fund's concentration in the energy sector and its focus on North American companies could expose investors to additional risks, particularly in the event of a downturn in the energy market or changes in energy policy.

To that end, I think it's important to think through time frames on this. Personally, I think the longer-term case is indeed there for Energy, BUT if I'm right about a corporate credit event and recession coming in the next 12 months, Oil would sell off (as we've seen recently), a global slowdown takes place, and independent of the longer-term investment thesis, this area would get shunned by risk-seeking investors. Having said that, this is a fund worth keeping an eye on for when momentum kicks back in. I'd just wait for a better macro backdrop.

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