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XEG ETF: Five Stocks Don't Make an ETF - The Reality Behind the Claim of Global Energy Exposure

  //stocks-investing.news-articles.net/content/202 .. -behind-the-claim-of-global-energy-exposure.html
  Published in Stocks and Investing on Tuesday, December 16th 2025 at 17:33 GMT by Seeking Alpha
      Locale: Ontario, CANADA

Summary of “XEG ETF: Five Stocks Don’t Make an ETF”
Seeking Alpha – 21 September 2023

The article opens by pointing out a seemingly paradoxical reality about the Xtrackers MSCI Global Energy ETF (ticker XEG): the very fund that claims to provide global energy exposure is, in practice, a portfolio of five single stocks. The author, who has followed the ETF’s inception since its launch in early 2021, argues that such concentration betrays the defining feature of an Exchange‑Traded Fund—diversification—and that the product ultimately falls short of the promise it markets.

1. The ETF’s stated objective and underlying index

XEG was designed to track the MSCI Global Energy Index, a benchmark that seeks to capture the performance of companies engaged in the exploration, production, and distribution of oil, natural gas, and other energy products worldwide. The index itself is heavily weighted toward large integrated oil and gas majors. However, the article notes that while the index contains a handful of smaller players, the ETF’s holdings mirror only the largest five names: Exxon Mobil, Chevron, Royal Dutch Shell, TotalEnergies, and BP.

A link to the MSCI page (msci.com) and the index composition is provided in the article, underscoring how the 100‑stock index is dominated by those same five companies—an observation the author says “sets a very clear tone for what XEG actually delivers.”

2. Concentration and its implications

The heart of the piece is a dissection of XEG’s top‑5 concentration. By using the ETF’s own holdings file (attached as a PDF in the article), the author calculates that these five names represent roughly 73 % of net assets. This concentration is compared to other energy ETFs that are far more diversified—such as the Energy Select Sector SPDR Fund (XLE), which has its top holdings spread across eight major oil and gas firms, and the iShares Global Clean Energy ETF (ICLN), which, as its name implies, has a broad mix of renewable‑energy specialists.

The article argues that a concentration of this magnitude exposes investors to idiosyncratic risk tied to the fortunes of a handful of integrated majors. When one of these companies experiences a shock—be it a regulatory penalty, a shift in commodity prices, or a geopolitical crisis—XEG’s performance will reflect that shock almost 70 % of the time.

3. Performance and tracking error

To quantify the impact of concentration, the author presents a performance table that pits XEG against both its benchmark and two peer ETFs over the past three years:

The article points out that XEG underperforms its benchmark by almost 3 % over the one‑year period, a gap largely attributed to the volatile swings of its five core holdings. Tracking error is also higher than expected for an ETF with a straightforward replication strategy, suggesting that the fund may be experiencing either liquidity constraints or price pressure on the individual names.

4. Expense ratio and liquidity

XEG carries an expense ratio of 0.75 %, significantly higher than the 0.08 % of XLE and the 0.47 % of ICLN. The article notes that the high expense ratio is partially a result of the fund’s “active‑looking” approach to the MSCI index, which includes additional management fees for re‑balancing and market‑making.

Liquidity is examined through average daily trading volume (around 12,000 shares) and bid‑ask spread (roughly 0.8 % of NAV). In contrast, XLE trades in the millions of shares daily with a spread of 0.2 %. The author suggests that the low liquidity can lead to execution issues for investors looking to buy or sell large positions.

5. The mismatch with the “energy” narrative

The article’s core critique rests on the idea that XEG’s “energy” label is misleading. By concentrating on the biggest oil majors, the fund omits a significant portion of the energy sector: midstream infrastructure, renewable energy producers, and emerging technologies. The author highlights that the MSCI Global Energy Index itself has only about 6 % exposure to renewable energy, yet XEG’s holdings are 100 % in conventional oil majors.

A side‑bar in the article links to a separate Seeking Alpha piece discussing the rise of green energy ETFs (e.g., ICLN, TAN) and how they have outperformed traditional oil and gas funds during the last two years. The author argues that an ETF truly aimed at the “global energy” market should at least contain a meaningful allocation to these newer subsectors.

6. Alternative ETFs worth considering

Given the shortcomings highlighted, the author recommends several alternatives depending on an investor’s focus:

The article explains that XLE offers broader oil‑gas exposure with lower fees, whereas ICLN and TAN give investors a taste of the growing renewable space. The author cautions that if one is specifically looking for a “global energy” perspective that includes both fossil fuels and renewables, a blended approach or a multi‑sector ETF may be more appropriate.

7. Final take‑away

The article concludes that XEG’s heavy reliance on five integrated oil majors erodes its value as a diversified energy product. Investors who wish to capture a truly global energy outlook should either accept a lower‑fee, more diversified oil‑gas fund or pivot toward renewable‑focused ETFs. The author’s final recommendation is clear: “Don’t treat XEG as a blanket for energy exposure.” If you’re looking to diversify your portfolio with an ETF that mirrors the full spectrum of the energy sector, XEG may not be the vehicle you’re after.

Links cited in the article

1. MSCI Global Energy Index overview – msci.com
2. XEG ETF factsheet – xtrackers.com
3. XLE factsheet – xtrackers.com (via the SPDR page)
4. ICLN factsheet – ishares.com
5. TAN factsheet – investiscorp.com

These references give readers a deeper dive into the ETF’s structure, underlying index, and competitor products.