Can XOP Deliver Value for Energy ETF Investors? A Closer Look at State Street's Exploration & Production Offering

Since launching in June 2006, the State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has grown into a substantial player within the Energy sector, accumulating over $1.82 billion in assets. For investors navigating the energy landscape, XOP presents an intriguing case study in how different indexing approaches can shape returns and risk exposure.

Understanding Smart Beta and Its Role in Energy Investing

Traditional market-cap weighted funds have long dominated the ETF landscape due to their simplicity and cost-effectiveness. However, a growing segment of investors believes that strategic stock selection can unlock better risk-adjusted returns. This philosophy underpins “smart beta” strategies, which deviate from conventional cap-weighting in favor of alternative methodologies—such as fundamental weighting, equal-weighting, and momentum-based approaches.

XOP operates as a modified equal-weight index fund, tracking the S&P Oil & Gas Exploration & Production Select Industry Index. This approach attempts to democratize exposure across the oil and gas exploration sector, from major operators to european exploration firms participating in global market dynamics. By avoiding the concentration that cap-weighting creates, XOP theoretically provides more balanced sector participation.

Cost Efficiency: A Competitive Advantage

One of XOP’s strongest attributes is its competitive expense ratio of just 0.35% annually—positioning it among the most affordable options in the Energy ETF space. For investors conscious of fee drag, this low-cost structure is meaningful, especially over multi-year holding periods.

The fund also delivers a 12-month trailing dividend yield of 2.62%, offering income-focused investors a steady distribution stream alongside potential price appreciation.

Portfolio Construction and Concentration Risk

XOP maintains approximately 55 holdings with 99.3% allocation to the Energy sector, demonstrating sector purity. Its top three positions—CNX Resources Corp (CNX) at 3.51%, Expand Energy Corp (EXE), and Murphy Oil Corp (MUR)—anchor the portfolio, with the top 10 holdings representing roughly 30% of total assets.

While this structure provides meaningful diversification, the modified equal-weight approach means no single position dominates to the extent seen in cap-weighted competitors. This matters for investors concerned about concentration risk while seeking genuine sector exposure.

Performance Metrics and Risk Assessment

As of early 2026, XOP has remained relatively flat year-to-date but declined approximately 2.12% over the trailing 12-month period. The fund’s 52-week trading range of $101.91 to $145.88 reflects typical energy sector volatility.

The risk profile tells an important story: XOP carries a beta of 0.75 with a standard deviation of 27.80% over three years, classifying it as a high-risk proposition within the Energy ETF category. This volatility demands investors with appropriate risk tolerance and time horizons.

Competitive Landscape: How XOP Stacks Up

The Energy ETF market offers alternatives worth considering. The Invesco Energy Exploration & Production ETF (PXE) and iShares U.S. Oil & Gas Exploration & Production ETF (IEO) pursue similar mandates but with different approaches. PXE manages $75.61 million with a 0.61% expense ratio, while IEO oversees $419.71 million and charges 0.38%.

For investors prioritizing simplicity and lower volatility, traditional market-cap weighted Energy ETFs may prove more suitable than smart beta alternatives, particularly when energy price movements already create substantial portfolio swings.

Verdict: Who Should Consider XOP?

XOP is best suited for investors who believe in the merits of equal-weighting strategies within the energy sector and possess the risk tolerance to weather significant price swings. Its low fees and diversified holdings (55 positions) offer structural appeal, but its recent underperformance and high volatility warrant careful consideration against competitors offering different indexing philosophies or reduced fee structures.