The VanEck Vectors Oil Service ETF (NYSEArca: OIH), the largest oil services exchange traded fund, and a fund that is heavily allocated to the industry’s biggest names due to its cap-weighted methodology, is clearing benefiting from crude’s recent rally. That much is evident by OIH’s fourth-quarter gain of about 13%.
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). The SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES), an equal-weight spin on oil equipment and services stocks, is up more than 18% since the start of the current quarter.
In other words, oil services, more so than traditional equity-based energy funds, are levered to rising (and falling) oil prices.
“But like oil producers, these companies are highly sensitive to the price of oil,” according to ETF Daily News. “Think about it. When the price of oil is low, producers make less money. That leads them to drill fewer holes…pump less oil…and buy less equipment and machinery.”
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.