Exploiting High Oil Prices The Small-Cap ETF Way (IOIL, RSXJ, PSCE)
It may not be a wonderful Wednesday for equities and some commodities, but oil just keeps on chugging higher. As of this writing, the United States Brent Oil Fund (NYSE: BNO) is up 1.3%, trading just pennies below a new 52-week high that was touched earlier in the session and looks poised to eclipse its average daily turnover.
In addition to BNO, there are myriad other options for playing oil's rise with ETFs. Yesterday, we highlighted a few of the large-cap options and even though today has risk off feel to it, we decided to examine some of the small-cap ETFs that have some correlation to the oil trade.
And this is a theme worth examining. “We continue to believe that we are in the midst of a multi-year bull market for commodities,” says Adam Patti, chief executive officer at IndexIQ. “The factors that have driven this trend remain in place – growing populations, limited resources, and demand from the emerging markets.”
Here's what we turned up in the hunt for small-cap plays on $120 (or higher) Brent prices.
IndexIQ Global Oil Small Cap Equity ETF (NYSE: IOIL) For a while there, IOIL was getting only scant attention but that has changed recently, perhaps due to oil's sharp move higher. The small-cap moniker is a tad deceiving here as IOIL is home to plenty of mid-cap companies. What isn't deceiving is the fact that this lightly traded ETF is up almost 19% year-to-date, better than double the returns offered by the Energy Select Sector SPDR (NYSE: XLE).
Market Vectors Russia Small-Cap ETF (NYSE: RSXJ) If we're going to to endorse the Market Vectors Russia ETF (NYSE: RSX) as a fine large-cap idea for surging crude then we ought to give RSXJ a look, too. Like IOIL, RSXJ isn't going to win any popularity or volume contests. But RSXJ shares something else in common with IOIL: It's performed far better than XLE this year. Energy names account for 26.1% of RSXJ's weight and that's small by the standards of Russia ETFs, but this fund is getting a boost from oil prices.
PowerShares S&P SmallCap Energy (Nasdaq: PSCE) PSCE has proven itself worthy of the prediction of being a worthy January Effect play. At the start of trading today, PSCE was up more than 15% year-to-date and we still view PSCE as one ETF that will be a winner from increased energy industry consolidation.
Jefferies | TR/J CRB Wildcatters Exploration & Production Equity ETF (NYSE: WCAT) Jefferies shuttered two of its ETFs late last year, but WCAT was one of the survivors. Home to 65 stocks, WCAT is like IOIL in that a lot of its holdings are in the mid-cap spectrum. Not a bad thing. WCAT shares something in common with PSCE as well, that being both ETFs are home to several credible acquisition targets. Perhaps the worst thing that can be said of WCAT is that its light volume creates dangerously wide bid/ask spreads.
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