Energy is rallying. The typical way to play a move is via oil prices or funds that top heavy with big oil companies. Yet an alternate way to get in on oil and the energy rally is the iShares U.S. Oil Equipment & Services ETF (IEZ), which is already up 20% year-to-date.
IEZ seeks to track the investment results of the Dow Jones U.S. Select Oil Equipment & Services Index. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.
The underlying fund measures the performance of the oil equipment and services sector of the U.S. equity market and includes companies that are suppliers of equipment or services to oil fields and offshore platforms, such as drilling, exploration, seismic information services, and platform construction.
This ETF is one option available to investors seeking to bet on the oil equipment and services sector of the domestic energy market, making it appealing to those who believe that increased oil demand will spark a need for the services these companies provide. Given the targeted focus of IEZ, this fund may be too granular for many long term buy-and-holders, but can be useful for those looking to fine tune energy exposure or generally increase a portfolio’s weight to this sector.
A small handful of stocks account for a major chunk of the underlying portfolio, making IEZ potentially sensitive to company-specific developments. SPDR® S&P Oil & Gas Equipment & Svcs ETF (XES) exists as a more balanced alternative: that equal-weighted ETF includes similar stocks but in drastically different proportions.
Looking at its 3-month chart, we can see IEZ riding the wave of momentum, with the fund gaining almost 80%:
Oil Extraction: An Industry Poised for Growth
The oil extraction industry looks poised for growth:
The “oil extraction equipment market is expected to grow at a rate of 3.60% in the forecast period 2020 to 2027,” a KSU Sentinel report noted. “Increasing number of oil exploration and field development activities which will act as a factor for the oil extraction equipment market in the forecast period of 2020- 2027.”
Looking at a pair of technical indicators, the relative strength index (RSI) and the moving average convergence divergence (MACD), we can see the high interest that’s pushing IEZ into overbought territory. The RSI is dipping below overbought levels and the exponential moving average (EMA) is above the signal line at 0.649 so a short-term pullback could give traders an area of value for an entry point.
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