“Exxon’s stock performance highly correlates to the performance of these energy ETFs. This isn’t only because Exxon makes up a significant proportion of the total composition of the ETFs, but also because any of the other companies that the ETFs hold are exposed to the same factors as Exxon (for example, crude oil prices, natural gas prices, and oil service costs),” according to Market Realist.
Although the risks of a small number of stocks dominating an ETF have been documented in the past, most notably with Apple and more recently with Google, it bears noting that the Exxon-dominating-ETFs scenario does remind investors of the advantages of ETFs.
That being on the way down, ETFs can and do outperform holdings that occupy significant weights. As a matter of fact, FENY, IYE, VDE and XLE have all been noticeably less bad than Exxon this year. [Of Google and ETFs]
Tom Lydon’s clients own shares of Apple and Google.