The energy sector once again has become a popular segment, as
surging oil prices and a continued increase in U.S. oil production
have put the space into focus. Since the start of the second half
of the year, oil is moving higher on improving global economic
growth conditions and tight supply in key producing areas around
The ongoing tension in Syria and the resulting threat of supply
disruption in the Middle East is also pushing oil prices higher
Oil ETFs Jump on Syria Turmoil
), leading to a sudden jump in many oil producing stocks.
Recent Trends: Oil Demand & Supply
Demand for oil in the U.S. is also rising rapidly this year, adding
to the commodity strength. In fact, the data from the International
Energy Agency (IEA) shows that the demand has increased in four of
the first six months of 2013, marking the strongest run in more
than two years.
Oil production in the U.S, the largest oil consumer, soared to
levels not seen in decades. According to the Energy Information
Administration (EIA), U.S. crude oil production would jump 14% this
year and 22% in the next (read:
Oil ETFs Surge on Strong Data
With this upward trend expected to continue, the U.S. is expected
to surpass both Russia and Saudi Arabia and become the world's
biggest producer of oil within the next five years. Further, the
U.S. could become energy independent by 2035 and a net exporter of
natural gas by the end of this decade.
However, the current oil production is showing little signs of
waning and the ongoing turbulence in Algeria, Nigeria, Egypt and
Syria could take a toll on the total oil supply going forward.
This, coupled with rising oil demand on the back of improving
global conditions, would lead to higher oil prices and the
resultant upsurge in the oil producer companies, at least for the
Given the optimism and promising growth outlook, investors seeking
to ride this sudden move might want to tap the space in ETF form.
For these investors, we have highlighted the top performing energy
ETFs over the past few weeks. Investors could enjoy smooth trading
in the months ahead, should oil price rise or remain firm thanks to
global issues and increased demand (see:
all the energy ETFs here
This trio of funds could be excellent plays for investors who
believe that oil will continue to move upward, and finally lead the
commodity world higher (read:
Time for This Top Ranked Energy ETF?)
Market Vectors Oil Services ETF (
This fund provides exposure to the 26 most liquid firms by tracking
the Market Vectors US Listed Oil Services 25 Index. With AUM of
more than $1.5 billion and average daily volume of about 4 million
a day, this is one of the largest and most popular in the
energy ETF space.
The product is concentrated across its top 10 securities at more
than 62% of total assets and is tilted towards large cap stocks.
) takes the top spot at 21.7%, closely followed by Halliburton (
) and National Oilwell (
) at 8.5% and 6.44%, respectively.
Apart from the U.S. companies, the fund also provides exposure to
Switzerland, Bermuda, Luxembourg, United Kingdom and the
Netherlands. The ETF charges a fee of 35 bps annually and added
over 5% in the past two months. OIH is up 18.35% so far this year
More Trouble for Oil Services ETFs?
iShares U.S. Oil Equipment & Services ETF (
This fund follows the Dow Jones U.S. Select Oil Equipment &
Services Index, holding 50 stocks in its portfolio. It has amassed
$401.4 million in its asset base and trades in good volume of more
than 110,000 shares per day. The ETF charges 46 bps in annual fees
Like its Market Vectors counterpart, IEZ allocates 68.76% of the
assets in top 10 holdings, with Schlumberger, Halliburton and
National Oilwell holding the top three spots. While large caps
stocks account for nearly 66% of the assets, mid and small caps
take the remaining portion in the basket (read:
Energy ETFs Rise on Schlumberger Earnings Beat
The fund gained nearly 5.2% over the past two months and is up
19.5% in the year-to-date period.
iShares U.S. Oil & Gas Exploration & Production ETF
This ETF tracks the Dow Jones U.S. Select Oil Exploration &
Production Index and holds 61 securities in total. The product has
been able to manage assets worth $375.3 million and trades in good
volume of 117,000 shares per day.
Here again, company-specific risk is high as indicated by a
concentration level of 62.80% of assets in the top 10 holdings. In
fact, the top firm - Occidental Petroleum (
) - dominates the fund return with a 13.24% share, followed by
Anadarko Petroleum (
) and EOG Resources (
) at 8.57% and 7.97%, respectively (see more in the
The fund gained over 5.6% in the past two months and has delivered
strong returns of 20.5% in the year-to-date period.
These energy ETFs could be worthwhile when natural resource prices
are rising. This is especially true with the dollar showing some
weakness of late and investors regaining confidence in the broad
commodity world, suggesting any of these funds could be interesting
choices to play oil strength in the near term (read:
3 Metal ETFs to Buy on the Commodity Upswing
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ANADARKO PETROL (APC): Free Stock Analysis
HALLIBURTON CO (HAL): Free Stock Analysis
ISHARS-US O&G (IEO): ETF Research Reports
ISHARS-US OIL E (IEZ): ETF Research Reports
MKT VEC-OIL SVC (OIH): ETF Research Reports
SCHLUMBERGER LT (SLB): Free Stock Analysis
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