As oil prices hit new highs, oil-related exchange traded funds (ETFs) benefit. Besides the obvious futures-based oil ETFs United States Oil (USO) and iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) another ETF that is happy to see oil prices climbing is the iShares Dow Jones U.S. Oil Equipment and Services (IEZ).
IEZ rode this year’s soaring crude prices to phenomenal gains through mid-October. Year-to-date, it’s up 41.1%. This ETF invests in shares of companies that build and maintain the infrastructure for the massive industrial complex that produces and distributes the world’s oil — for example, by manufacturing, servicing and operating oil rigs and pipelines, says Don Dion for Seeking Alpha. Many of the larger firms represented in IEZ’s portfolio diversify their operations throughout the energy sector.
Despite IEZ’s overall high performance for most of this year, investors should note that it’s a more volatile fund because it has heavy weightings in its top holdings. It recently held more than 60% of its assets in its top ten positions, with 15% in top holding Schlumberger (SLB) alone. Schlumberger, the world’s largest oil-services firm, released a third-quarter earnings report October 19 that included weak results in many markets and underwhelming forecasts for the coming year. The stock fell more than 10% by the end of the day, dragging down other stocks in the industry and sending IEZ tumbling more than 6%. For investors interested in other energy sub-sector ETFs, below are some with their performance year-to-date:
- iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) – up 37.5%
- SPDR S&P Oil & Gas Equipment & Services ETF (XES) – up 35.3%
- SPDR S&P Oil & Gas Exploration & Production ETF (XOP) – up 35.1%
For full disclosure, some of Tom Lydon’s clients own IEO.