A Better Way to Play the Oil Drillers
Published 9/29/2010 12:02 p.m. EDT
iShares Dow Jones US Oil Equipment Index
had an impressive (if volatile) performance this morning, and the oil-services subsector looks promising in late 2010. While IEZ is leading the pack of oil-service ETFs today, I'd encourage investors to check out
SPDR S&P Oil and Gas Equipment and Services ETF
As a cap-weighted fund, IEZ is extremely top heavy, allocating more than 17% of its underlying portfolio to
. In the wake of the
disaster, it has become pretty clear that you don't want to stake all your energy exposure on one firm -- it is better to use a fund that mitigates security-specific risk.
XES uses an equal-weight methodology so that investors have minimal risk when it comes to swings in single components. XES' top five components --
-- comprise just 4.32%, 4.32%, 4.12%, 4.11% and 4.11% of the underlying portfolio, respectively. By spreading out assets among 27 underlying holdings, XES' construction helps to minimize the risk of blowups.
A recent report showing that crude supplies are lower than expected should continue to help energy subsectors involved with this commodity in the weeks ahead. As we move into winter and people in the U.S. begin to fire up their heating, XES should continue to benefit from the season shift as well as the lower-than-expected oil supplies.
At the time of publication, Dion Money Management had no positions in stocks mentioned.