Vanguard Energy vs. SPDR Oil & Gas Exploration: Which ETF Suits Your Portfolio Best?

The Vanguard Energy ETF (NYSEMKT:VDE) offers a broad, market-cap-weighted approach to the energy sector, while the State Street SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) provides equal-weighted exposure to upstream producers.

Energy investors often choose between broad sector coverage and targeted industry plays. Both funds focus on the oil and gas space, but their construction methods lead to different risk profiles and return drivers. This comparison examines how these two heavyweights stack up on cost, performance, and portfolio makeup.

Snapshot (cost & size)

The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is the more affordable option with a 0.09% expense ratio, while the SPDR ETF charges 0.35%. Additionally, the Vanguard fund offers a higher payout, providing a 2.7% yield compared to 2.1% for its peer.

Performance & risk comparison

What's inside

Vanguard’s ETF targets the broad U.S. energy sector, encompassing 111 holdings across various market capitalizations. Its largest positions include ExxonMobil (NYSE:XOM) at 21.5%, Chevron (NYSE:CVX) at 13.5%, and ConocoPhillips (NYSE:COP) at 5.51%. The fund allocation is primarily in energy at 77%, with 22% in cash and other positions. This ETF was launched in 2004. It has paid $4.03 per share over the trailing 12 months.

The SPDR ETF provides more targeted exposure, holding 51 companies specifically within the oil and gas exploration and production segment. Its largest holdings include PBF Energy (NYSE:PBF) at 3.49%, Par Pacific (NYSE:PARR) at 3.24%, and Delek US (NYSE:DK) at 3.09%. Because it follows a modified equal-weighted index, it avoids the heavy concentration in mega-cap stocks seen in its peer. The SPDR fund was launched in 2006. It has paid $3.25 per share over the trailing 12 months.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

At a glance, there are many aspects of the Vanguard fund I find more attractive when stacked up against its peer. For one, VDE has a lower expense ratio, and that will affect your portfolio's returns over the long term. Vanguard's ETF also pays a higher dividend. Furthermore, VDE has better recent returns, outperforming the SPDR fund over the past one- and five-year time frames.

The SPDR ETF has a much more concentrated portfolio, with about half as many stocks as VDE, as well as a narrower focus on oil and gas exploration and production companies. I like my ETFs to be more diversified (VDE's portfolio holds 111 stocks), but some investors may prefer the greater exposure to this specific area of the energy patch.

One final difference worth pointing out is the two ETFs' position weightings. No stock accounts for more than 4% of XOP's portfolio, which I think does help mitigate some of the concentration risk. On the other hand, VDE has nearly twice as many holdings as XOP, but its top three make up more than 40% of the fund's value. ExxonMobil alone has a 20%-plus weighting. So while I think Vanguard’s fund is a better investment choice overall, investors should be aware that this ETF’s returns will be driven in large part by just a handful of stocks.

Erin Kennedy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips and Delek Us. The Motley Fool has a disclosure policy.