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Dicker: Drill Down for Profits With Oil Services ETF

NEW YORK (TheStreet) -- I was speaking to Gregg Greenberg here at TheStreet about an oil services exchange-traded fund I particularly like right now, the SPDR S&P Oil & Gas Equipment & Services ETF (XES), from State Street (STT).

It is very rare for me to recommend an ETF, preferring to select stocks one at a time instead of using a shotgun approach with an exchange-traded fund.

But it is, in fact, the shotgun nature of this ETF that I like right now, considering the mixed bag of oil services stocks from which to choose. The XES does not weight its fund based upon the market cap of the underlying companies, instead choosing 49 oil services companies, both land and offshore, and weighting each one of them equally.

This makes a fund that is very biased to small- and even micro-cap services groups, many of which have become specialists in fast-changing and technologically challenging modern drilling techniques.

This is in stark contrast to the more popular Market Vectors oil services ETF, the Oil States International (OIH), which weights its fund using market caps of the underlying companies, making it very biased towards the three mega-cap names of Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI).

Those three behemoths try to do virtually everything in the services sector and therefore investors can miss some of the gains that really new specialist technologies can deliver. With ever-increasing complexities surrounding shale wells and deepwater drilling, right now seems to me to be a better time to be focused on the smaller-cap, specialized players.

I talk more with Gregg about the pros and cons of the XES and the OIH in the video above.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 25 years of oil trading experience. He is a licensed commodities trade adviser.

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