While the easiest ETF move for rising oil prices would be a pure play oil fund, investors shouldn’t ignore the oil services side of the equation with funds like the VanEck Vectors Oil Service ETF (OIH ).
OIH is going from strength to strength, with a year-to-date gain of about 33%. Stretch that performance out to a one-year span and investors will see a gain of just over 100%.
OIH seeks to replicate the price and yield performance of the MVIS® US Listed Oil Services 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.
The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the oil services segment. Such companies may include small- and medium-capitalization companies and foreign companies that are listed on a U.S. exchange.
Movers and shakes in the oil services industry like Baker Hughes saw strong first quarters. Free cash flow at Baker Hughes practically doubled in the first quarter compared to the previous quarter, and more profits could be ahead.
“As we look ahead to the rest of 2021, we remain cautiously optimistic that the global economy and oil demand will recover from the impact of the global pandemic. We expect spending and activity levels to gain momentum through the year as the macro environment improves, likely setting up the industry for stronger growth in 2022,” Baker Hughes chairman and CEO Lorenzo Simonelli said.
Strong Earnings for OIH's Top Holding
Oilfield services company Schlumberger also saw a strong first quarter. This translated to strength for OIH, given that the company comprises over 20% of the fund’s assets.
“Schlumberger (SLB) came out with quarterly earnings of $0.21 per share, beating the Zacks Consensus Estimate of $0.19 per share,” a Zacks Equity Research article published in Yahoo! Finance noted. “This compares to earnings of $0.25 per share a year ago. These figures are adjusted for non-recurring items.”
“This quarterly report represents an earnings surprise of 10.53%,” the article added further. “A quarter ago, it was expected that this world’s largest oilfield services company would post earnings of $0.18 per share when it actually produced earnings of $0.22, delivering a surprise of 22.22%.”
The stock has risen 30% year-to-date. Additionally, the company’s leadership is optimistic for the rest of the year.
“We started the year with conviction in our strategic direction and our resulting outlook for 2021," Schlumberger CEO Olivier Le Peuch said. “The combination of the promising first-quarter results and an increasingly constructive macroeconomic view are strengthening this conviction.”
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