As has been widely cited, oil prices are tumbling and the energy sector is the worst-performing group in the S&P 500 this year. Not surprisingly, oil services stocks and exchange traded funds, assets that are often highly correlated to oil prices, are stumbling.
For example, the VanEck Vectors Oil Service ETF (NYSEArca: OIH), the largest oil services ETF and a fund that is heavily allocated to the industry’s biggest names due to its cap-weighted methodology, is down almost 18% year-to-date. That decline is nearly double that of the largest energy ETF. The SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES), an equal-weight spin on oil equipment and services stocks, has been even worse with a loss of over 22%.
Other oil services ETFs include the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) and the PowerShares Dyanmic Oil & Gas Services Portfolio (NYSEArca: PXJ). Those two ETFs are down an average of 18%.
OIH tracks the 25 largest oil services companies in the space. Both XES and IEZ track a slightly broader 37 components, but XES follows a more equal-weight indexing methodology that favors midsized companies while IEZ reflects a traditional market cap-weighted indexing methodology. Lastly, PXJ follows a fundamentally weighted index, which selects stocks based on price momentum, earnings momentum, quality, management action, and value.