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Should the XEG ETF be part of your Portfolio?

XIG ETF

What is the XEG ETF?

The iShares S&P/TSX Capped Energy ETF or XEG is an all-equity exchange-traded fund (ETF) that gives you exposure to TSX-listed Canadian oil and gas firms. It invests all of its funds in a portfolio of equity assets, with no exposure to fixed-income assets such as bonds or GICs. The iShares XEG ETF is a high-risk investment option professionally managed by BlackRock

Some Key Facts:

  • Inception Date: March 19, 2001
  • Benchmark: S&P/TSX Capped Energy Index
  • Net Assets: CAD 1,375,168,682 (as of June 11th)
  • MER: 0.61%
  • Number of holding: 13
  • Distribution Yield: 1.64%
  • 12 months Trailing Yield: 1.68%
  • Dividend Schedule: Quarterly
  • P/E Ratio: 18.13%
  • Risk: High-rated
  • Exchange: Toronto Stock exchange

Pros of XEG:

  • It is a low-cost ETF
  • Provides tailored exposure to firms in the energy industry in Canada
  • Use it to communicate a sector viewpoint

Cons of XEG ETF:

  • Invests solely in stock market securities.
  • Sector diversity is lacking.
  • Geographic variety is lacking.
  • Is prone to price fluctuations in commodities.

Top 10 Holdings:

iShares XEG is one of Canada’s oldest exchange-traded funds (ETFs) that invests only in the Canadian energy industry, with no diversification. It is an all-equity ETF that invests only in equities with no exposure to fixed-income instruments. It holds 14 publicly listed energy firms. iShare XEG invests mainly in 3 types of sectors; Oil and gas exploration and production, integrated gas and oil, and Cash and/or derivatives.

If you take a closer look at its top 10 holdings, you can see that its largest holding is Canadian Natural Resources Ltd., which accounts for a fourth of its total assets (25.06% percent stake as of June 11th, 2021). With a 23.59% weighting, Suncor Energy Inc is right behind it. Finally, Cenovus Energy is the company’s third-largest holding, with a 13.54% stake.

Fees:

The MER of iShares XIU is 0.61%, which is lower than the MER of numerous other ETFs with comparable financial sector exposure. As a result, it’s a very low-cost ETF to consider adding to your portfolio.

Performance and Returns:

Although Canada’s huge oil sands activities have been extremely profitable over the years, commodity price volatility has had a substantial influence on the performance and returns of the iShares XEG ETF. With minimal exposure to fixed-income assets and little regional and industry diversity, the success of the iShares XEG ETF is solely dependent on the success of Canadian energy sector operators. Its performance is influenced by falling commodity prices, decreasing crude oil demand, and a number of other variables.

Should you add XEG in your portfolio?

Focusing on the energy industries can result in huge growth when commodity prices are high, but it may also decimate investor returns when oil prices and demand are low. If you are a conservative investor, this may be cause enough to be concerned about the safety of your cash. With minimal exposure to fixed-income assets and a focus on Canadian energy businesses, iShares XEG may be too risky to consider as an investment. Nevertheless, if you believe the energy industry will grow in the next few years, the iShares XEG ETF might be a good investment.


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