WHAT IS ‘Oil Services Industry ETF’
Oil services industry ETF refers to a sector exchange-traded fund that invests in companies that provide services such as seismic testing to the oil exploration & production (E&P) industry. Oil services companies generally do not produce oil and gas themselves, since their core competencies lie in supplying services and associated products to energy producers.
BREAKING DOWN ‘Oil Services Industry ETF’
Oil services industry ETFs are closely tied to the overall energy industry, whose outlook, in turn, is closely related to the prices of oil and natural gas. The performance of the oil services sector and related ETFs also depend on the current stage of the economic cycle.
As is the case with other ETFs, oil services industry ETFs offer the diversification of an index fund, as well as the ability for investors to sell short, buy on margin and purchase as little as one share. Also, the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors are required to pay the same brokerage commission that they would pay on any regular stock order.
EXAMPLES OF ‘Oil Services Industry ETFs’
The largest oil services industry ETF, in terms of both assets and trading volume, is the VanEck Vectors Oil Services ETF. Traders often refer to it as the OIH, which is the ETF’s ticker symbol. VanEck relaunched the OIH as a true ETF in 2011; it previously existed as the Oil HOLDRS, an ETF-like investment devised by Merrill Lynch in 2000 that was popular among institutional traders. The original OIH consisted of a static set of stocks.
Unlike its forebearer, The modern-day OIH is periodically rebalanced. It seeks to track the performance, before fees and expenses, of the MVIS U.S. Listed Oil Services 25 Index, which is composed of roughly 25 prominent, mostly U.S-based equipment, services and drilling companies.
Another well-known oil services industry ETF is the SPDR S&P Oil & Gas Equipment & Services ETF, ticker symbol XES, which seeks to replicate the performance of the S&P Oil & Gas Equipment & Services Select Industry Index.
Two other oil services industry ETFs are the iShares U.S. Oil Equipment & Services ETF, and PowerShares Dynamic Oil & Gas Services.
Similar to ETFs representing other industries and sectors, investors tend to evaluate oil services industry ETFs based on the breadth depth and industry exposures of their specific holdings, as well as fees charged and dividend yields generated. Liquidity also is a consideration, especially for traders, as well as investors who seek to implement sector-rotation strategies.