Under The Hood: PowerShares SmallCap Energy ETF

Earlier this year, Invesco PowerShares brought a suite of nine small-cap sector ETFs to market designed to be small-cap equivalents to the Select Sector SPDRs ETFs.

A solid idea to be sure and one that drew the ire of the SPDR folks because the PowerShares offerings have the same tickers as the comparable SPDR funds except with "S" at the end.

State Street Global Advisors didn't like that and took PowerShares to court over a trademark dispute, but this isn't a legal column, so let's not delay any longer and go under the hood with the PowerShares S&P SmallCap Energy ETF (Nasdaq: XLES).

XLES is actually down a little bit since its April 7 debut, but the combination of small-caps and energy names does have potential the longer the bulls are in control of this market.

In fact, XLES is up almost 12% in the past month compared to an 8% run for the Energy Select Sector SPDR (NYSE: XLE). See, there is something to investing in energy stocks beyond Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).

That said, XLES isn't littered with the type of speculative energy stocks we all get emails about that are subject to some pump-and-dump scam. The average market cap of the ETF's 22 holdings is almost $1.5 billion.

Somewhat familiar names like Swift Energy (NYSE: SFY), Holly (NYSE: HOC) and SM Energy (NYSE: SM) dot XLES's top-10 holdings. No guarantees, but there may be some acquisition targets in the XLES fray.

XLES actually turns out to be a great play on small-cap value, an asset class that has gone unloved this year and if that sentiment changes, XLES stands to benefit with an almost 60% allocation to small-cap value names.

Volume of just over 3,000 shares per day leaves something to be desired and XLES is not optionable, but the expense ratio of 0.29% is quite nice.

XLES is worth a look because you can kill two birds with one stone: Small-cap exposure and a play on rising oil prices.