ETF Trends CEO Tom Lydon discussed the VanEck Vectors Oil Service ETF (OIH) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
This ETF is designed to track the largest 25 U.S.-listed oil service companies. As such, investors should not expect a deep portfolio, but it is important to note that the fund heavily favors its top ten holdings. It is also important to mention that about one-quarter of the fund is invested in foreign equities, as several firms on the list are cross-listed on foreign exchanges or hold their headquarters beyond our borders.
Energy stocks surged as investors rotated to some of the market’s previously battered segments on growing hopes of a return to a normal economy in 2021. OIH was up 11.1% for a 1-week, 40.0% for a 1-month, but still -36.9% year-to-date. Still, the fund has been among the best performers over the past month.
There are now rising bets of a global economic rebound due to promising Covid-19 vaccines. Pfizer’s Coronavirus vaccine is already being widely distributed across the United Kingdom. COVID-19 vaccines are being fast-tracked by the FDA under emergency use.
Fittingly, there are hopes that aggressive monetary and fiscal policies will support further growth ahead. Congress is looking at a new coronavirus relief package that could make up close to $1 trillion. Due to an improving economic outlook, investors are revisiting some of the worst-hit areas during the coronavirus pandemic selling, such as energy.
Other Factors Supporting The Oil Outlook
There has been a strengthening demand from China, the largest commodity consumer in the world. China is expected to be the only global economy to show a positive expansion. The country has largely contained Coronavirus infections and has more or less returned to normal.
There are now bigger bets on travel picking up in the U.S., Europe, and worldwide. The increased travel means increased fuel demand.
Looking at the supply side curbs, the Organization of Petroleum Exporting Countries and its allies, or OPEC+, could maintain disciplined cuts to stabilize prices. OPEC+ has agreed to modest output hikes, adding to bets that supply won’t surge too quickly. The group agreed on a compromise to raise output slightly from January but maintain existing supply curbs to cope with coronavirus-hit demand pressure.
OPEC+ is expected to ease deep oil output cuts from January by 500,000 barrels per day with further as yet undefined increases monthly. 500,000 bpd from January is not the nightmare scenario that the market feared.
Listen to the full podcast episode on the OIH ETF:
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