One of the ways to invest in and profit from the oil industry is to invest in companies that supply the equipment and services to the major producers. I wrote an article on this strategy before. In this post let me discuss the simplest and easiest way to gain exposure to this sector via ETFs. Investing with ETFs is especially preferable for retail investors since the transaction cost is very low and the risk of selecting individual stocks is vastly reduced.
1. iShares Dow Jones US Oil Equipment Index Fund (IEZ)
This sector-specific ETF tries to replicate the performance of Dow Jones U.S. Select Oil Equipment & Services Index.The fund has assets of about $370 million and the annual dividend yield is 0.54%.
The top 10 holdings in the portfolio the top names in the industry such as Ensco, FMC Technologies, Halliburton, Schlumberger NV, etc. In terms of performance, the fund is up about 13% YTD this year and in the last five years it was down about 7% and 1% in 2012 and 2011 respectively.
2. SPDR S&P Oil & Gas Equipment & Services ETF (XES)
Similar to the iShares ETF, this ETF has about $308 million assets and tries to replicate the return of S&P Oil & Gas Equipment & Services Select Industry Index.
The fund is up about 11% YTD. In the past five years, the ETF was down only in 1011 by about 5%. The top 10 holdings are similar to the iShares ETF with slight differences.
3. PowerShares Dynamic Oil & Gas Services Portfolio (PXJ)
This ETF is about half the size of the other two ETFs noted above in terms of assets held. The fund tries to mimic the performance of the Dynamic Oil Services IntellidexSM Index.
The fund is up about 11% this year YTD and the top holdings are similar to the other two ETFs.
The five year return of the three ETFs is shown below:
Click to enlarge
Source: Yahoo Finance
Two of the three ETFs have nicely recovered from the March 2009 lows and have even exceeded the pre-crisis levels. The other ETF is almost close to reaching the pre-crisis level.
For a listing of companies in this sector click here.
Note: Dividend yields noted are as of Feb 15, 2013
Disclosure: No Positions