IEZ: Navigating The Volatility Of Oil

seekingalpha08-29

IEZ focuses narrowly on oilfield services, with top-heavy holdings in Schlumberger and Baker Hughes, which dominate the ETF's performance.Despite a growing oilfield services market, IEZ's low AUM, low...

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href=https://seekingalpha.com/article/4717883-iez-navigating-volatility-of-oil><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>IEZ focuses narrowly on oilfield services, with top-heavy holdings in Schlumberger and Baker Hughes, which dominate the ETF's performance.Despite a growing oilfield services market, IEZ's low AUM, low...</p>\n\n<a href=\"https://seekingalpha.com/article/4717883-iez-navigating-volatility-of-oil\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SGXZ23171101.USD","symbol_name":"NIKKO AM SHENTON GLOBAL OPPORTUNITIES (USD) 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price volatility remains a significant risk for IEZ.The ETF's expense ratio is competitive, but its below-average dividend yield and lackluster gains warrant caution for potential investors.   shotbydave Crude oil is far and away the largest commodity market, and oil prices are consistently a topic of discussion for investors. Even “non-investors” may be more up to date on oil prices versus other market activity, considering global crude oil price plays the largest role in determining the price of everyday consumer gasoline.   Department of Energy iShares US Oil Equipment & Services ETF (NYSEARCA:IEZ) tracks a market-cap-weighted index of domestic companies that are suppliers of equipment or services to oil fields and offshore platforms. IEZ leans far from the neutral exposure of the oil & gas drilling & exploration market, instead opting for a narrower approach to the oil segment. The fund tracks a Dow Jones index that basically ignores the oil and gas transportation industry and allocates heavy into the suppliers of equipment and services to oil fields and offshore platforms, such as drilling, exploration, seismic-information services and platform construction.   Seeking Alpha IEZ is essentially 100% from the energy sector with its 35 holdings. Uncommon to a standard index fund investment, IEV’s top two holdings carry over 41% weight of the ETF. This is odd for an ETF to be this top heavy, so let’s take a deeper look at these two companies. Schlumberger Limited (SLB) is one of the biggest and most prominent companies in the oilfield services sector, providing technology, project management, and information solutions to the global oil and gas industry. They are both the world's largest offshore drilling company and the world's largest offshore drilling contractor by revenue. Baker Hughes Company (BKR) is a massive player in oilfield services and is headquartered in Houston, Texas. They provide products and services for oil well drilling, formation evaluation, completion, production, reservoir consulting, and tubular running services. Operating across 120 countries, they are recently known for utilizing technology innovation and sustainability efforts. Halliburton (HAL) is another huge oilfield services provider worth noting but comes in a very distant third for portfolio weight of IEZ. Baker Hughes has played its part with over a 12% annualized gain across the past five years. Schlumberger and Haliburton, not as much with closer to a 6% annualized gain for these two. Considering for large parts of the past few years that investors could get a guaranteed 4-5% in high yield savings account, IEZ needs more from these heavyweights.   Reuters These three dominant the industry and each saw a big jump in revenue from 2022 to 2023, especially Schlumberger. Valuation among this group is noticeably low, but current profitability and growth outlook with the “Big 3” is what IEZ will need to rely on moving forward.   Seeking Alpha The global oilfield industry is rapidly growing through technological advancements leading to increased oil and gas output. Current market size of the industry is $322.83 billion and is expected to reach $540.97 billion by 2032, for a 5.9% compound annual growth rate (CAGR). The market's increased demand for oil and gas from offshore regions is what is driving the demand for oilfield services. Continued emphasis on cost reduction through tech innovations and operational efficiencies, such as more use of automated rigs and robotic systems, is propelling this industry higher. Oilfield services companies are also diversifying into renewable energy sectors, such as wind and solar, to hedge against the volatility of the oil market.   Energy Information Administration On the flip side, oil prices can be highly volatile due to geopolitical events, supply-demand imbalances, and economic conditions. IEZ will be affected greatly as the price of oil constantly shifts. Low oil prices can lead to reduced capital expenditure, delaying projects and slowing expansion. High oil prices generally lead to higher revenues and profit margins, as well as increased merger and acquisition activity (M&A).   Seeking Alpha IEZ has noticeably lower AUM at $152.95 million, and significantly less average daily share volume than some of its peers. This makes it seem that the ETF may be moderately under discovered and could extend hope that in the long run it can catch up with its industry competitors. But at the same time, IEZ really shouldn’t be seen as unknown, considering it has been a public ETF for almost 20 years.   Seeking Alpha The expense ratio for IEZ is low at .40% and pretty much on par with other similar ETF’s. The dagger for IEZ is its below average dividend yield coming in at 1.46% quarterly. Among all its competitors, IEZ has the lowest 4-year average yield, and by a very wide margin compared to a few of them. This is the icing on the cake and why we have IEZ as a hold right now. It is not a buy, largely in part because of its underperformance compared to industry cohorts. The oil and gas exploration and production side of the industry seems to be performing better recently but give it some time to see which direction the services and equipment side veers in coming months. The oilfield services industry has positive signals and great room for growth, but investors of IEZ must be aware of oil sector volatility and lackluster gains compared to similar ETF’s.    Seeking Alpha","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2463257875"}