What is an Oil Services Industry ETF
Oil services industry exchange-traded fund (ETF) refers to a sector fund that invests in companies which assist the oil and gas exploration & production (E&P) industry sector. Examples of such business include those who offer seismic testing, pipeline transportation, and other equipment.
Oil services companies generally do not produce oil and gas themselves, since their core competencies lie in supplying services and associated products to the energy producers.
BREAKING DOWN Oil Services Industry ETF
Oil services industry ETFs relate closely to the overall energy industry, whose outlook, in turn, is closely associated with the prices of oil and natural gas. The performance of the oil services sector and related ETFs also depend on the current stage of the economic cycle. Many investors and traders will trade in the oil services sector if they do not want a direct holding in an oil or gas producer.
An exchange-traded fund (ETF) are marketable securities which trade like a common stock on an exchange. The oil services ETF will hold the underlying asset such as stock in the servicing companies.
As is the case with other ETFs, oil services industry ETFs offer the diversification of an index fund, as well as the ability for investors to sell short, buy on margin and purchase as little as one share. Also, the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors are required to pay the same brokerage commission that they would spend on any regular stock order.
Comparing Oil Services Industry ETFs
Similar to ETFs representing other industries and sectors, investors evaluate oil services industry ETFs on the breadth, depth, and industry exposures of their specific holdings. Consideration of the liquidity, fees charged, and dividend yields generated is essential when comparing funds.
VanEck Vectors Oil Services ETF (OIH) is the largest oil services industry ETF with $1.58 billion in net assets. VanEck relaunched the OIH as an actual ETF in 2011 after it had previously existed as HOLDRS, an ETF-like investment devised by Merrill Lynch in 2000, popular among institutional traders. OIH rebalances periodically. It seeks to track the performance, before fees and expenses, of the MVIS U.S. Listed Oil Services 25 Index, which is composed of roughly 25 prominent, mostly U.S-based equipment, services, and drilling companies.
SPDR S&P Oil & Gas Equipment & Services (XES) is a medium value ETF with over $402 million in net assets. The fund attempts to replicate the performance of the S&P Oil & Gas Equipment & Services Select Industry Index through the use of a sampling strategy. The fund invests at least 80% of all assets in securities making up the index.
Two other oil services industry ETFs are the iShares U.S. Oil Equipment & Services ETF, and PowerShares Dynamic Oil & Gas Services.