A Buying Opportunity In Oil Service ETFs?

IEZ also lost about 2.2% in Wednesday trading, though the ETF is up an impressive 27.6% in the YTD period (see all the Top Ranked ETFs).

SPDR S&P Oil & Gas Equipment & Services ETF (NYSEARCA:XES)

This fund follows an equal weight benchmark for its exposure, though it still tracks a similar basket of equipment and services companies. In total, the ETF holds about 50 stocks in its basket, putting a heavy focus on equipment/services, though drilling companies also account for a decent chunk of assets.

Thanks to the equal weight approach, large caps make up just 22% of assets, leaving big amounts for small and micro cap securities. The top holdings aren’t exactly the most famous either, with Core Laboratories (CLB) and Geospace Technologies (GEOS) barely edging out their competitors with 2.8% of the total assets.

XES lost about 2.1% in Wednesday’s trading session, though the fund is up 24.9% since the start of 2013.

PowerShares Dynamic Oil & Gas Services (NYSEARCA:PXJ)

This ETF also takes an equal weight approach, tracking the Dynamic Oil Services Intellidex Index. This benchmark evaluates companies based on a variety of investment criteria—such as growth, stock valuations, investment timeliness, and risk—giving a portfolio of 30 stocks in its basket.

Once again, large caps account for a small fraction, only 30% in this ETF, leaving a big chunk for mid and small caps. Plus, thanks to the smaller number of securities, companies take up larger slices of the asset pie, with BHI, SLB, and WFT taking the top three spots and each accounting for 4.9% of assets.

PXJ lost 2.1% in Wednesday trading, though the fund is up 26.3% in the YTD time frame (see Invest in These Fundamentally Strong ETFs).

Bottom Line

There has been some rocky trading in the oil services segment of the market lately, as decent earnings haven’t helped to counteract tumbling oil prices. If this trend continues, there is definitely reason to worry, and especially so for companies that have heavy exposure to oil drillers as these companies could definitely cut back when oil prices are plunging.

It is probably too early to panic though, as there have been strong long term gains in the oil service corner of the market, and some selling was probably long overdue. Still, investors thinking about the space need to be concerned, and should definitely watch the earnings estimate revision picture and the price of oil, as if these continue to move south, there could definitely be more trouble on the horizon for the aforementioned oil service ETFs.

This article is brought to you courtesy of Eric Dutram.

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