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Avoid Oil And Gas Equipment And Services ETFs, But Consider These Stocks

Recently, I wrote an article that examined the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP). Today, I am moving on a different aspect of the oil and gas industry: equipment and services. There are four ETFs covering this industry, including VanEck Vectors Oil Services ETF (NYSEARCA:OIH), SPDR S&P Oil & Gas Equipment & Services ETF (NYSEARCA:XES), iShares U.S. Oil Equipment & Services ETF (NYSEARCA:IEZ), and PowerShares Dynamic Oil & Gas Services Portfolio ETF (NYSEARCA:PXJ).

OIH and XES are tied with the lowest expense ratio of 0.35%, while PXJ has the highest at 0.63%. While each of the four ETFs track different indices, OIH and IEZ have outperformed their siblings over the last five years, primarily due to the fact that their associated indices are weighted by market cap as opposed to XES and PXJ, which are not. Market-cap-weighted portfolios generally have lower beta and perform better in down markets, whereas equal-weight portfolios perform better in up markets. The oil bear market which started in 2014 appears to have been the catalyst for the disparity in performance.

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by Steve Auger