When you invest in the oil services sector, you are partially shielded from the short term price volatility of oil and gas that exploration and production companies suffer from. After all, oil field services operate mainly under contracts and are profiting from the shale revolution in North America thanks to the advent of horizontal drilling and multi-stage hydraulic fracturing. There is an increased demand for oil field services thanks to the hot liquid rich resource plays such as the Bakken and the Eagle Ford amongst many others. An oil services ETF investment also provides you with exposure to the global energy services sector as many of the companies held by these ETFs are multi-nationals with geographically diversified operations. There are mainly 4 oil services ETFs that cover the oil field services sector:
IEZ – iShares Dow Jones U.S. Oil Equipment & Services (NYSEArca: IEZ)
IEZ 50.87 [+0.90]
Average Volume: 190131
Yield: 0.39%
MER: 0.47%
IEZ ETF was first introduced in 2006. The fund seeks to replicate the performance, before fees and expenses, of the Dow Jones U.S. Select Oil Equipment & Services Index. While the fund’s top 10 holdings account for 65% of the ETF’s total assets, Schlumberger by itself makes up 19% of the fund followed by Halliburton at 9% and National Oilwell at 8.6%.
OIH – Oil Services HOLDRs ETF (NYSEArca: OIH)
OIH 38.61 [+0.62]
Average Volume: 4752550
Yield: N/A
MER: N/A
OIH ETF first appeared in 2001. The fund holds the common stock of 18 companies involved in the oil service industry. The fund is not really diversified because the top 3 holdings exceed 40% of the fund’s weighting with Schlumberger accounting for 19%, 14% for Baker Hughes and 12.5% for Halliburton. The fund is liquid and pays the highest dividend amongst its peers. The top 10 holdings of the fund account for 93% of the total assets. OIH will be converting to a Market Vector ETF before the end of the year. We will take a second look at this fund once it completes its conversion in order to assess any positive or negative impacts.
PXJ - PowerShares Dynamic Oil & Gas Services (NYSEArca: PXJ)
PXJ 19.711 [+0.311]
Average Volume: 89152
Yield: 0.01%
MER: 0.63%
PXJ seeks to match the performance, before fees and expenses, of the Dynamic Oil Services IntellidexSM Index. The Underlying Intellidex was composed of stocks of 30 U.S. companies that assist in the production, processing and distribution of oil and gas. Even though the fund is liquid, it has the highest fees compared to its peers. On the other hand, contrary to OIH and IEZ no one stock it holds has a weighting higher than 5.5% which makes the top 10 holdings account for only 51% of the fund’s total assets.
XES – SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES)
XES 34.11 [+0.63]
Average Volume: 198998
Yield: 0.35%
MER: 0.37%
XES ETF seeks to replicate, net of expenses, the total return performance of the S&P Oil & Gas Equipment & Services Select Industry index. The underlying index represents the oil and gas equipment and services sub-industry portion of the S&P Total Market index. If you are looking for an ETF that mirrors an equal weighted underlying index, XES is the one to invest in with its top 10 holdings accounting for 43% of its total assets. XES also stands out with the lowest management expense ratio.
The best oil services sector ETF will provide you with the right amount of exposure you are seeking when it comes to the industry as a whole or to a number of “big boys” you want to hold. If you’re looking for diversification, look no further than XES. XES also wins hands down when it comes to the lowest fund fees. On the other hand, OIH and IEZ will provide you with a significant exposure to the large cap names investors are fond of.
