Following a disappointing 2012, energy ETFs have rebounded nicely in 2012. Noteworthy is the fact that the renaissance seen in this corner of the ETF universe has not been confined to the usual suspects such as the Energy Select SPDR (NYSE: XLE).
Thanks in large part to the ongoing North American shale boom, oil services providers have been posting robust earnings and impressive order backlog data. For example, National Oilwell Varco's (NYSE: NOV) order backlog for its rig-technology business was $11.86 billion at the end of the fourth quarter. Cameron International (NYSE: CAM) had an order backlog of $8.6 billion at the end of last year, a figure greater than its revenue for the year.
Statistics like that have been good news for oil services ETFs, but investors might be surprised to learn which of those funds has emerged as the leader in recent months. It is not the Market Vectors Oil Services ETF (NYSE: OIH), the largest oil services ETF. Nor is it the iShares Dow Jones U.S. Oil Equipment & Services Index Fund (NYSE: IEZ), though both funds have performed well in the past 90 days.
Rather, the new leader among oil services ETFs is the less heralded SPDR S&P Oil & Gas Equipment & Services ETF (NYSE: XES). The SPDR S&P Oil & Gas Equipment & Services ETF is by no means small with nearly $308 million in assets under management as of January 31. With average daily volume of just over 111,000 shares, XES is more heavily traded on a pure volume basis than IEZ, though both pale in comparison to OIH's average turnover of 3.5 million shares.
Superficial statistics aside, there is no denying that when factoring in Friday's gains, XES is up about 17.1 percent in the past three months. That is well ahead of the 14.7 percent offered by IEZ and the 12.8 percent returned by OIH.
XES's recently bullish ways do serve as a reminder of . While XES does not advertise itself as an equal-weight fund, essentially that is what the ETF is. XES is home to 47 stocks with none receiving a weight larger than 2.86 percent.Conversely, OIH and IEZ are highly dependent on three stocks to drive their returns to those ETFs. Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL) and National Oilwell Varco. Those stocks combine for a third of IEZ's weight and 39.5 percent of OIH's weight. In XES, that trio represents just 7.7 percent of the fund's total weight.
By virtue of spreading its weight around more evenly, XES offers more exposure to mid- and small-cap names. The weighted average market value of XES constituents is $9.45 billion, according to State Street data. By comparison, the average market value of IEZ's holdings was $25.44 billion at the end of the fourth quarter.
XES offers another advantage. By shying away from large weights to oil services behemoths, the ETF could benefit from increased mergers and acquisitions activity in this sub-sector. Schlumberger and National Oilwell Varco are two of the more acquisitive companies in the group and XES is home to several firms that have been previously mentioned as takeover targets, including Dresser-Rand (NYSE: DRC), Dril-Quip (NYSE: DRQ) and McDermott International (NYSE: MDR).
Potential takeovers should not be the only reason to consider XES, but the fund's out-performance of its peers is a valid issue to evaluate the ETF.
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