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After Earnings, How Are Oil Service ETFs Shaping?

A lot is being said about oil for the last one-and-a-half years. Almost every day, the commodity is hitting headlines for all wrong reasons. The acute and persistent plunge in oil prices and no hope for immediate recovery is actually pushing down the global market. The worry has reached such a delirious stage that jittery investors are fervently keeping an eye on the earnings performance of the oil service companies before taking their call on any investment in energy stocks. After all, the investing world is busy figuring out whether oil has hit a bottom after a horrendous sell-off and is due to turn around soon, benefitting the broader energy sector. The Zacks Industry Rank for the said space is presently in the bottom 17%. Thanks to this outright bearish backdrop, the sector tops investors’ attention list this earnings season as everyone will be interested in the health of the oil companies. Let’s delve a little deeper into the earnings scenario and see how things are shaping up for the space. In this piece, we have considered two stocks, namely – Schlumberger Ltd. (NYSE: SLB ) and Halliburton Company (NYSE: HAL ) . Among the duo, Schlumberger reported earnings results on January 21 after the market closed while Halliburton reported on January 25 before the market opened. Results in Detail Halliburton – the second largest oil service company – came up with an earnings beat though revenues missed in Q4. Earnings of $0.31 per share from continuing operations beat the Zacks Consensus Estimate of $0.24. Improved stimulation works in Kuwait and Australia helped the company to beat on the bottom line despite rock-bottom oil prices. The bottom line fell considerably from fourth-quarter 2014 earnings of $1.19. However, Halliburton’s revenues of $5.08 billion reflected a 42.1% year-over-year improvement but a 0.3% miss the Zacks Consensus Estimate. Shares were down 4.1% in the two trading sessions following the declaration of results. Schlumberger – the world’s largest oilfield services provider – came up with a mixed Q4. Adjusted earnings of $0.65 per share (excluding special items) edged past the Zacks Consensus Estimate of $0.63 but fell from the year-ago number of $1.50. Continued decline in rig activity amid the oil price carnage was behind the year-over-year decline. Total revenue of $7.7 billion declined 38.9% year over year but was in line with the Zacks Consensus Estimate. SLB advanced more than 6% in the trading day following the results. Market Impact The space got mixed signals thanks to not-extremely-downbeat performances as many expected from these oil service giants. We would like to note that both companies currently have a Zacks Rank #5 (Sell), solely because of poor industry fundamentals. Still investors might want to know the impact on ETFs that are heavily invested in these popular oil service companies. Below, we have highlighted three oil-services ETFs with considerable allocation to SLB and HAL that could be in focus following oil-service earnings: iShares US Oil Equipment & Services ETF (NYSEARCA: IEZ ) This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $195.7 million of assets in 41 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 19.41% of holdings. Generally, when one stock accounts for as much as 19% of an ETF’s weight, its individual performance decides much of the fund’s price movement. HAL takes up the second position with about 9.26% of total assets. The fund gained about 1.2% in the last three trading sessions (as of January 26, 2016) following the release of the earnings by the duo. IEZ charges 0.45% for its expense ratio. The fund has a Zacks ETF Rank #5 with a High risk outlook. Market Vectors Oil Services ETF (NYSEARCA: OIH ) OIH tracks the Market Vectors US Listed Oil Services 25 Index. The index invests $924.7 million of assets in 26 holdings. OIH devotes as much as 20.44% of the portfolio weight to SLB, followed by 11.66% in HAL. OIH is cheap in the space with an expense ratio of 0.35%. The fund returned about 0.9% in the last three trading sessions (as of January 26, 2016). OIH has a Zacks ETF Rank #5 with a High risk outlook. PowerShares Dynamic Oil & Gas Services Fund (NYSEARCA: PXJ ) This product offers exposure to 30 energy stocks with SLB and HAL at the second and fourth positions, respectively, allocating 5.5-6% of total assets to each. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $31.9 million thus far. The ETF charges 63 bps in fees, so it is a bit more expensive than some of its counterparts in the space. The fund has added about 0.1% following the earnings release of the two companies. PXJ has a Zacks ETF Rank #5 with a High risk outlook. Original Post

Middle East Stocks Crash On Iran Sanctions: ETFs To Watch

After China and oil issues, developments in the Middle East are posing further hindrance to the stock market that may worsen the global rout this week. This is especially true following the historic deal between Iran and the world major powers that lifted oil sanctions imposed on the former in late 2000. The relaxation would add a fresh stock of oil to the already oversupplied global market as Iran is expected to increase its crude oil exports by half a million barrels a day immediately and a million barrels a day within a year of lifting the ban. Notably, Iran is the world’s fourth-largest reserve holder of oil with 158 billion barrels of crude oil, according to the Oil & Gas Journal . The country also accounts for almost 10% of the world’s crude oil reserves and 13% of reserves held by the Organization of the Petroleum Exporting Countries (OPEC). The liftoff spread panic in the Middle East and crashed all the seven Gulf stock markets. In fact, the stocks saw a bloodbath wiping out more than £27 billion from the Middle East markets in Sunday’s trading session (read: Guide to Middle East ETF Investing ). The Bloomberg GCC 200 Index, which tracks 200 of the six-nation Gulf Cooperation Council’s biggest companies, plunged to the lowest level in almost seven years. Saudi Arabian stocks fell 5.4%, Kuwait and Qatar stock exchanges experienced 3.1% and 4.6% drop, respectively, while stocks in Qatar saw an enormous 7% decline on the day. ETFs to Watch The terrible trading in the Gulf stocks will have a big impact in the ETF world as well. In particular, the Market Vectors Gulf States Index ETF (NYSEARCA: MES ) , the WisdomTree Middle East Dividend Fund (NASDAQ: GULF ) , the iShares MSCI Qatar Capped ETF (NASDAQ: QAT ) and the iShares MSCI UAE Capped ETF (NASDAQ: UAE ) should be on investor’s watch list of the funds that are likely to be badly hurt by the Iran sanctions liftoff. From a year-to-date look, these funds shed 13.7%, 10.2%, 13.4% and 9.2%, respectively. MES: The fund provides exposure to 60 stocks that generate at least 50% of their revenues in the Gulf Cooperation Council (GCC) region by tracking the Market Vectors GDP GCC Index. About one-third portfolio is allotted to firms in United Arab Emirates, followed by Qatar (25.9%) and Kuwait (19.3%). The product is often overlooked by investors as depicted by its AUM of $8 million and average daily volume of about 3,000 shares. The fund charges a higher annual fee of 99 bps from investors. GULF: This ETF follows the WisdomTree Middle East Dividend Index, which measures the performance of dividend-paying companies in the Middle East. It holds a basket of 70 stocks with the largest exposure of at least 23% to firms in Qatar, Kuwait and United Arab Emirates. The fund has amassed $22.8 million in its asset base while trades in paltry volume of 9,000 shares a day. Expense ratio comes in at 0.88% (see: all the Africa-Middle East Equity ETFs ). QAT: This fund provides exposure to 29 Qatari stocks by tracking the MSCI All Qatar Capped Index. It has accumulated $40.5 million in its asset base while see volume of 7,000 shares a day on average. QAT charges 64 bps in fees per year. UAE: This ETF targets the United Arab Emirates stock market and follows the MSCI All UAE Capped Index. Holding 33 stocks in its basket, it has been able to manage $23.6 million in AUM so far and charges 64 bps in annual fees. Volume is light at around 10,000 shares a day on average. What Lies Ahead? Oil price, which contributes more than 80% of the Middle East revenues, has fallen 20% this year and over 70% since late 2014. This trend will likely persist in the months ahead given unfavorable demand/supply dynamics. In fact, a number of investment banks are projecting oil price to drop as low as $10 per barrel, the lowest since 1998. This is because oil production has risen worldwide with OPEC continuing to pump near-record levels, and higher output from the likes of U.S., Iran and Libya. Additionally, a strengthening U.S. dollar backed by a rate hike is making dollar-denominated assets more expensive for foreign investors and thus dampening the appeal for oil. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. Further, the four products detailed above have a bottom Zacks Rank of ‘4’ (Sell) or ‘5’ (Strong Sell), suggesting that these will continue to underperform in the months ahead. All these suggest that investors should avoid investing in the Middle East until and unless oil prices stabilize or rebound. Link to the original post on Zacks.com

Ding Dong: Currency Devaluation Plagues Vietnam ETF

2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong. VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month. Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story. By Todd Shriber, ETF Professor China is not the only Asian country that has recently devalued its currency nor are China exchange traded funds the only ones tracking countries in the region that have been slammed by the extreme currency interventions. Vietnam, previously a prolific devaluer of its currency, the dong, is back at it again. In fact, 2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong and was the case following prior instances of dong devaluation , the Market Vectors Vietnam ETF (NYSEARCA: VNM ) is feeling the pain. Ding Dong VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month and if the support area the ETF is currently flirting with, a return to the 2013 lows is likely. Not surprisingly, VNM’s lowest levels of 2013 were seen less than 90 days after, a dong devaluation. This time around, market observers see the dong devaluation as a response to China’s similar move. The theory makes sense as a Vietnam is also an export-driven economy and central banks in such economies, particularly in Asia, will take drastic moves to defend their countries’ exporters. “The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday-its third adjustment so far this year-and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days,” according to CNBC . Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story because it allocates over a quarter of its weight to consumer sectors and 44.1 percent to financial services firms, the companies that are lending to other parts of the Vietnamese economy. “Having debuted in August of 2009, the fund recently celebrated its five year anniversary trading live, and as one may expect the underlying index being based on the domestic equity market of Vietnam is not incredibly deep to the limitations of the country still being on the fringe of Frontier/Emerging markets territory,” said Street One Financial Vice President Paul Weisbruch in a recent note. Intended or not, Weisbruch’s comments about Vietnam’s market status are well-timed if not prescient because the country has not been shy about its desire to earn a coveted promotion from frontier to emerging markets status from index provider MSCI. The problems with that promotion are threefold for Vietnam. First, Vietnam is not even on the list of countries MSCI is considering for such an upgrade. Second, it can takes to earn the promotion after being added to the list. Just look at Qatar and United Arab Emirates. Third, Vietnam’s heavy-handed approach to managing its currency is probably not something index providers look favorably upon. Vietnam is currently the ninth-largest country weight in the iShares MSCI Frontier 100 ETF (NYSEARCA: FM ) at a weight of almost 3.5 percent. Home to heavy weights to two OPEC members, Kuwait and Nigeria, and several other major oil producers, FM is off almost 10 percent this year. That is to say further weakness from Vietnamese equities will not be welcomed by this ETF, either. VNM had a P/E ratio of just over 15 at the end of July , which is a slight discount to FM and a noticeable premium to the MSCI Emerging Markets Index. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.