Beware of These 3 Funds – You May Be VERY Overweight In XOM Stock

Odds are you already own plenty of Exxon shares

Beware of These 3 Funds – You May Be VERY Overweight In XOM Stock

Exxon Mobil (XOM) is a tour de force, with energy assets spanning the globe. And XOM stock is one of the largest oil stocks on the planet. Even with its recent missteps on the production front, XOM still churns out tons of oil, natural gas and profits for its shareholders.

ExxonMobilLogo Beware of These 3 Funds   You May Be VERY Overweight In XOM StockOver the long haul, XOM stock has certainly earned its $435 billion market cap.

However, that hefty market cap and size can be a bit of a problem for investors. XOM stock is found everywhere; it’s the top one or two holdings in almost every large-cap U.S. stock mutual fund or exchange-traded fund (ETF) on the planet. While that in of itself isn’t’t too much of an issue, it can be a big problem if investors own several different funds or own XOM stock individually in addition to ETFs or mutual funds.

Simply put, too much of your portfolio’s overall returns may be riding on the performance of XOM stock. A prolonged lull in Exxon shares has the very real possibility of holding your portfolio down. And despite long-term gains, XOM stock has underperformed many of its energy peers in the past … as it did in 2013.

The lesson: Investors in these four funds may want to think about avoiding adding additional XOM stock to their portfolios.

The iShares US Energy (IYE)

iShares185 Beware of These 3 Funds   You May Be VERY Overweight In XOM StockXOM Stock Weight: 25%

The fracking revolution has made North America the new champ when it comes to the energy sector. And with its huge 2010 purchase of XTO, Exxon is one of the top “frackers” and natural gas producers in the nation. As such, XOM stocks prominence in many U.S.-shale focused energy ETFs is understandable.

The iShares US Energy (IYE) is no different — except that it has the most exposure to XOM stock out there. Currently, IYE has nearly 25% of its portfolio in XOM. And with just over $1.6 billion in total assets, that means IYE has roughly $385 million riding on the oil stock. That’s more than double the next biggest holding — Exxon rival and integrated super-major Chevron (CVX).

While the fund does spread its remaining 75% of holdings among 85 different energy firms — including a who’s who of North America’s biggest and brightest oil stocks — the truth is the bulk of the oil stocks in IYE only amount to less than 1% each.

IYE isn’t necessarily a bad fund; in fact it could be one of the best ways to play fracking and unconventional drilling. However, with that much riding on XOM stock, investors may want to think twice about adding it if they already own the stock or hold other concentrated funds.

ING Corporate Leaders Trust Series B (LEXCX)

ING185 Beware of These 3 Funds   You May Be VERY Overweight In XOM StockXOM Stock Weight: 11%

Fellow InvestorPlace Contributor Will Ashworth’s favorite mutual fund — the ING Corporate Leaders Trust Series B (LEXCX) — is a quirky beast. LEXCX was created in 1935 with an equal number of common stock shares of the 30 leading U.S. companies at the time. New stocks can’t be purchased, so the fund’s holdings have changed only due to spin-offs or mergers.

Currently, LEXCX has only 22 holdings … including XOM stock.

However, that highly concentrated nature puts XOM stock at 10.55% of assets and makes it the second-largest holding for the mutual fund. And with a relatively small asset base — only about $1.5 billion — XOM stock is major contributor to the fund’s overall long term performance.

Sure, that performance has been pretty stellar. However, with many analysts now predicting that XOM stocks go-go days are behind it, LEXCX could suffer with its large stake in the integrated giant. Investors may want to think twice about adding XOM stock to their portfolios if they have already followed Will’s advice and added LEXCX.

iShares Morningstar Large-Cap Value (JKF)

iShares185 Beware of These 3 Funds   You May Be VERY Overweight In XOM StockXOM Stock Weight: 10%

With a forward P/E ratio of 12 and a hefty 2.6% dividend yield, XOM stock is firmly in the “value” stock category. In fact, more than 842 different value ETFs and mutual funds hold XOM shares. The iShares Morningstar Large-Cap Value (JKF) perhaps holds the most of its assets in Exxon.

Tracking an index created by fund rating agency Morningstar (MORN), JKF focuses on large-cap stocks that have exhibited above-average value characteristics. Given the underperformance of XOM stock over the last few years, it fits the cheapness required of JKF’s underlying index.

Perhaps a bit too well.

Overall, XOM stock makes up nearly 10% of the ETF’s assets. Again, that may not be too bad in its own right. After all, XOM stock is still a great long-term investment. The lesson, though, is that if you’re looking to add XOM because you believe it’s a “value” among large-cap energy producers, odds are your value fund already has a huge slug of it.

Being too overweight could prove problematic if things don’t turn out as planned.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/12/xom-stock-iye-jkf-vti/.

©2014 InvestorPlace Media, LLC

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