ETF Showdown: The "Other" Oil Services ETFs
ETF Showdown: The “Other” Oil Services ETFs
Short-term traders love oil services stocks. This high-beta group can pack quite a punch in either direction when oil prices are trending strongly and it should be noted that the likes of Halliburton (NYSE: HAL) and National Oilwell Varco (NYSE: NOV) often sharply outperform integrated oil stocks when oil prices are rising.
So there's a lot to like when it comes to oil services stocks, but when it comes to oil services ETFs, one fund dominates the landscape: The Oil Services HOLDRs (AMEX: OIH).
That doesn't mean there isn't competition in this space. Indeed there is and we're going to evaluate two of OIH's unheralded competitors in this week's “ETF Showdown.”
Weighing in with an expense ratio of 0.35% and assets under management of $487.5 million we have the SPDR S&P Oil & Gas Equipment & Services ETF (NYSE: XES). In the other corner, we have the PowerShares Dynamic Oil & Gas Services Portfolio (NYSE: PXJ), which has an expense ratio of 0.63% and AUM of $243.2 million.
Those are two big differences right there. Other noticeable differences include XES being home to 45 stocks while PXJ has just 30 tenants. In the oil services arena, a narrower focus can be an advantage for investors because the larger companies, the Halliburtons, the National Oilwells and the Schlumbergers (NYSE: SLB) of the world, are what you really want exposure to.
As an example, those three stocks are PXJ's top-three holdings and account for about 15% of the ETF's weight. By comparison, those three don't even combine for 7% of XES's weight. ETFs that don't throw big weights at just a few stocks have their advantages, but in this case, NOV, Halliburton and Schlumberger are up an average of 63% in the past year. That's not the type of performance you want to be light on.
PXJ and XES do share an interesting similarity: Slight, and emphasis on “slight,” exposure to Transocean (NYSE: RIG), the world's largest provider of offshore drilling services.
Given that Transocean is the biggest services provider of any type, it is odd that isn't featured in PXJ's lineup and that it gets a weight of just 2% in XES. Yes, Transocean is easily the most controversial of all oil services names, but stocks that become controversial for reasons outside of the market's doing, and the Gulf of Mexico oil spill qualifies, have a tendency to outperform when the controversy evaporates.
Put another way, if you want some Transocean exposure without owning the shares directly, an ETF is the way to go, but neither PXJ or XES are really going to get the job done.
Declaring a winner isn't easy because PXJ and XES have moved in lockstop with each other year-to-date, but that also means the pair has delivered nearly double the returns of OIH. Even with the higher fees, we slightly prefer PXJ given its larger allocations to best-of-breed oil services names.
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Tags: ETF Showdown