Oil prices have been doing quite well in 2013, as the important commodity has risen thanks to a stronger economic outlook in the U.S., and a rebound in many international markets as well. However, even with the lack of a Fed taper, oil prices have fallen back in recent weeks, leading some to think that the best days of 2013 are behind this energy commodity.
In fact, the United States Oil ETF (NYSEARCA:USO), which is up about 4.7% on the year, is now down about 7% in the past three months, while its one month return stands at -5%. This suggests a bearish trend is at hand for oil prices, and that investments linked to equities in the space could have some trouble in store in the very near future (see all the Energy ETFs here).
Oil Equities in Focus
We have already started to see this take place in some corners of the oil equity market, with companies that are engaged in some aspect of the hydrocarbon extracting process. In particular though, the oil services space may be the most in trouble, as evidenced by some recent price action in the space.
This corner of the market has actually seen relatively solid earnings, with companies like Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB) leading the way for the space. Both companies actually beat earnings for the period, and are expected to see solid EPS growth for the current year and next periods as well.
However, with tumbling oil prices, the outlook may be a little darker for these companies, and especially so that have big drilling operations. These firms could see slack demand if oil continues to slump, potentially leaving many firms high and dry to end the year.
A Reversal at Hand?
As a result of these lower oil prices, some analysts have begun to cut their estimates for many companies in the sector, pushing the oil-Field Services industry sharply down the Zacks Industry Rank list. This has helped to take many oil service firms off of their peak prices, and it has led to a bit of a decline in recent trading.
Should this bearish trend continue, it may suggest that we have already seen the top for oil service companies in 2013 and that now is the time to exit the space. However, if oil prices rebound—or if natural gas can continue to move higher—this might be a nice buying dip for long term investors.
Either way though, an ETF approach could be the way to play this corner of the market. This technique looks to have lower risk levels than what investors see in individual securities, while still tapping into the broad trends in the space.
Fortunately, there are several oil service ETFs currently trading in the market, any of which could help investors accomplish their task of making a targeted bet on the space. Below, we have highlighted some of the most popular choices in this segment, and the key differences between them:
Market Vectors Oil Services ETF (NYSEARCA:OIH)
This ETF is easily the most popular in the space, with over $1.8 billion in AUM. The ETF tracks the Market Vectors US Listed Oil Services 25 Index, holding companies from around in the world that are in the oil services space (see Energy ETFs Surging on Q3 Earnings).
Top holdings include Schlumberger (SLB), Halliburton (HAL), and National Oilwell Varco (NOV), as these three account for 40% of the total assets. Large caps account for roughly three-fourths of the portfolio, while U.S. stocks make up nearly 75% of the total assets.
OIH is up over 26.4% in the YTD time frame, though it was down 2.2% in Wednesday trading.
iShares U.S. Oil Equipment & Services ETF (NYSEARCA:IEZ)
Another choice in this corner of the market comes to us from iShares, tracking the Dow Jones US Select Oil Equipment & Services Index. This benchmark provides exposure to 50 companies, taking a cap weighted approach.
Top holdings are once again focused on SLB, HAL, and NOV, with Schlumberger making up over 21% on its own. This fund has more of a U.S. focus than OIH, though it is more spread out from a cap perspective, with 24% going to mid cap stocks.