Rating The Oil Services ETFs

Even in a tough market environment where oil and oil equities are not looking nearly as racy as they were just a few months ago, it's fair to say oil services ETFs are still great in their own special way. These are among the most volatile sector ETFs out there. So volatile that it's fair to say oil services ETFs can pack all the punch of a leveraged ETF without those high expense ratios.The oil services ETF is dominated by four funds: The Oil Services HOLDRS (AMEX: OIH), the PowerShares Dynamic Oil & Gas Services Portfolio (NYSE: PXJ), the iShares Dow Jones U.S. Oil & Equipment Services Index Fund (NYSE: IEZ) and the SPDR S&P Oil & Gas Equipment & Services ETF (NYSE: XES).While it would appear that all of these ETFs are carbon copies of each other, in fact, they are not. In that vein, we decided to apply letter grades to these oil services ETFs. We chose to not let overall performance be a deciding factor because PXJ, IEZ and XES have moved in lockstep with each other year-to-date while OIH has performed slightly worse, probably because it is the only one of the quartet that offers double-digit exposure to Transocean (NYSE: RIG).Our four criteria, which were applied on an equal-weight basis, were liquidity, fees, diversity of holdings and potential to perhaps break away and outperform the rest of the quartet in a bull market.Oil Services HOLDRs:OIH is tricky because the problem is four stocks, Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL), Baker Hughes (NYSE: BHI) and Transocean account for over 52% of the ETF's weight. That means it would get low scores for diversity, but that is canceled out by superior liquidity. The Transocean exposure has held OIH's performance back, but that could be helpful if that name comes back into style.What's tricky here is that OIH is going to become a Market Vectors ETF soon and that could mean positive (or negative) changes. Without knowing what the future holds for OIH, it receives a tepid B-PowerShares Dynamic Oil & Gas Services Portfolio:It's hard to knock PXJ on the basis of volume because its average daily turnover is decent. It just falls short when compared to its rivals. The ETF's expense ratio is high by the standards of this group, but we like the fund's exposure to Cameron International (NYSE: CAM) and National Oilwell Varco (NYSE: NOV). Grade: B+ SPDR S&P Oil & Gas Equipment & Services ETF:XES is home to about 50 stocks and that's nice, though this ETF goes the opposite way of OIH. Where OIH is excessively weighted to just a few names, XES only allocates 2.4% to its largest holding. That means it would be very tough for this fund to outperform its rivals. The 0.35% expense ratio bests IEZ and PXJ. Grade: BiShares Dow Jones U.S. Oil & Equipment Services Index Fund:IEZ's top-10 holdings account for nearly 64% of the ETF's weight and Schlumberger gets 18% on its own, so the ETF fails the diversity test. However, since Schlumberger, Halliburton and NOV account for over a third of the ETF's weight, we also think that this is the one of the quartet that could really break away. Not sure why Transocean isn't in here, but hey, those are the breaks. Grade: A