Well-documented has been the retrenchment in the energy sector. There was an extended period of time earlier this year when the Energy Select Sector SPDR (NYSEArca: XLE) was the top performer among the nine sector SPDR ETFs.
Entering Wednesday, XLE is now the worst of the nine SPDRs on a year-to-date basis and the only that resides in negative territory. Amid a third-quarter plunge in oil prices, one that has lingered into the current quarter with the United States Oil Fund (NYSEArca: USO) shedding almost 12% in the past month, XLE, its constituents and rival energy ETFs have been stung. [Oil ETFs Plagued by Weak Outlook]
If there is an upside to the energy sector’s recent downside it is this. A sector often associated with being a value play has seen its value allure increase in recent weeks. That assessment could prove especially true of downtrodden oil services ETFs, such as the Market Vectors Oil Service ETF (NYSEArca: OIH).
The oil services sub-sector recent declines have it “trading at levels not seen since late 2005 (with the exception of 2009), before the beginning of the previous cycle,” said Barclays in a research note obtained by Financial Advisor magazine.
Barclays “notes companies such as Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), still have a considerable amount of backlog to work through before they would start to feel the impact of industry cutbacks,” according to Financial Advisor.
Schlumberger and Halliburton, the world’s largest providers of oilfield services, combine for 33.5% of OIH’s weight. OIH, the largest oil services ETF, has tumbled almost 20% over the past 90 days due to falling oil prices and other factors.
Those other factors include speculation that several of OIH’s smaller holdings could be crimped for cash to the point that dividend cuts could be in the offing. Earlier this month, it was reported that credit default swaps (CDS), the instrument used by bond traders to protect against issuer default, have recently surged for offshore drillers such as Diamond Offshore (NYSE: DO), Ensco (NYSE: ESV) and Noble (NYSE: NE). [Dividend Talk Hurts Oil Services ETFs]
Additionally, there has been no shortage of chatter about the future of Transocean’s (NYSE: RIG). Diamond Offshore, Ensco, Noble and Transocean combine for 14.6% of OIH’s weight. The ETF had a P/E ratio of just under 13.5 at the end of the third quarter compared to about 17 for the S&P 500.
Market Vectors Oil Service ETF
