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Q2 Earnings Bring No Respite For Oil Service ETFs

The oil price carnage, which started to unsettle the investing world in the second half of 2014, is showing no sign of a retreat. Even this year, the crude issues are blazing. As a result, investors are fervently looking out for the earnings performance of oil service companies to weigh their options for an investment in energy stocks. Presently, the Zacks Industry Rank for oil service companies is in the bottom 27%. Thanks to this outright bearish backdrop, the sector is grabbing investors’ focus this earnings season, as everyone is keen on finding out the direction of oil flow. Let’s delve a little deeper into the earnings picture and see how things are shaping up for the space. In this piece, we have discussed two stocks – namely, Schlumberger Ltd. (NYSE: SLB ) and Halliburton Company (NYSE: HAL ). Between the duo, Schlumberger reported earnings on July 16, followed by Halliburton on July 20. The results were broadly mixed, with Halliburton beating on both lines and Schlumberger delivering mixed numbers. Results in Detail Halliburton, the second-largest oil service company, came up with an earnings and revenue beat in Q2. Its earnings of $0.44 per share from continuing operations beat the Zacks Consensus Estimate of $0.29. However, the bottom line deteriorated from the second-quarter 2014 adjusted earnings of $0.91 per share. The company’s revenues of $5.9 billion reflected a year-over-year decline of 26.5%, but a 0.7% beat over the Zacks Consensus Estimate. Higher profitability in Brazil, improved drilling activities in the Middle East/Asia and cost containment efforts led to the beat, despite the energy sector’s weakness. The shares were up over 1.8% in the key trading session following the results, but the slump in crude prices in the wake of a steadier greenback led the stock to shed 1.6% after-hours. Schlumberger, the world’s largest oilfield services provider, came up with a mixed Q2 with adjusted earnings of $0.88 per share (excluding special items), which edged past the Zacks Consensus Estimate of $0.79, but fell from the year-ago number of $1.37. Total revenue of $9.0 billion declined 25% year-over-year and fell shy of the Zacks Consensus Estimate of $9.1 billion. SLB retreated about 0.4% following its results, mainly reflecting the revenue weakness and failing crude prices. Market Impact The space is obviously woebegone. Still, a bottom-line beat in both firms in this downbeat operating environment can be perceived positively. While a single stock pick is always an option to play this earnings season, we could see a deep impact on ETFs that are heavily invested in these popular oil service companies (see all the Energy Equity ETFs here ). Notably, the ETF route will help investors to mitigate one company’s average performance with the other company’s stellar results. 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 U.S. Oil Equipment & Services ETF (NYSEARCA: IEZ ) This ETF, which tracks the Dow Jones U.S. Select Oil Equipment & Services Index, invests about $313 million of assets in 46 securities, focusing solely on the energy world. In-focus SLB takes the first position here, with 23.83% of holdings. Generally, when one stock accounts for as much as 23% of an ETF’s weight, its individual performance decides much of the fund’s price movement. HAL takes up the second position, with about 10.22% of total assets. The fund is off about 11.5% year-to-date (as of July 20, 2015). However, following the release of earnings by the duo, IEZ has lost about 2.4% (as of July 20, 2015). IEZ is a cheaper fund, charging 0.44% for its expense ratio. The fund has a Zacks ETF Rank #3 (Hold), 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 $986.7 million of assets in 26 holdings. The fund devotes as much as 22.28% of the portfolio weight to SLB, followed by 13.2% in HAL. OIH is cheap in the space, with an expense ratio of 0.35% (read: Oil Services ETFs Head-to-Head: XES vs. OIH ). The fund is down about 11.3% so far this year (as of July 20, 2015), and has lost about 2.4% since July16. OIH has a Zacks ETF Rank #3, with a High risk outlook. PowerShares Dynamic Oil & Gas Services Portfolio ETF (NYSEARCA: PXJ ) This product offers exposure to 30 energy stocks, with SLB and HAL at the second and fourth positions, respectively, allocating more than 5% of total asset to each. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index, and has amassed about $58 million thus far. The ETF charges 61 bps in fees. Thus, it is slightly more expensive than some of its counterparts. The fund has lost about 3.3% following the earnings release of the two companies, and is off over 15% year-to-date. PXJ has a Zacks ETF Rank #4 (Sell), with a High risk outlook. Original Post

Top ETF Stories Of 2014 Worth Watching In 2015

The stock market across the globe has given mixed performances in 2014. While the Dow Jones Industrial Average crossed the 18,000 mark for the first time in mid December and the S&P 500 is on the verge of crossing the 2,100 level on the back of an accelerating job market and improving economic fundamentals, a number of international economies have either slipped into recession or are struggling to reignite growth. In particular, several events will likely spill over into 2015 and continue to impact the ETF world either in a positive or a negative way. Below, we have highlighted some of these events, which will hog investor attention in the New Year: Oil/Energy ETFs The broad energy space hit headlines all year round as oil price jumped to a fresh high in mid June and then took a reverse turn slipping to a multi-year low in December. While geopolitical tensions in Russia and insurgency in Iraq propelled the oil prices and the energy ETFs higher in the first half of the year, rising U.S. shale oil production, abundant supply, slowing global demand, no cut in OPEC output, and a strong dollar pushed them to lower levels in recent months. Whether the bear will continue to chase the energy space or will it turn around in 2015? This is THE question everywhere in the world. However, oil price is showing some strength in today’s trading session on concerns over the Libyan supply disruption. As a result, investors should definitely keep a close eye on ETFs that will largely be impacted by this development. In particular, the First Trust ISE-Revere Natural Gas Index Fund (FCG ) , SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) , Market Vectors Oil Services ETF (NYSEARCA: OIH ) , United States Oil Fund (NYSEARCA: USO ) and United States Brent Oil Fund (NYSEARCA: BNO ) are some of the funds that could see huge volatility. FCG, having a Zacks ETF Rank of 5 or ‘Strong Sell’ rating, has stolen the show this year, plunging 41.2% while XOP and OIH lost about 28% and 24.2%, respectively and have a Zacks ETF Rank of 4 or ‘Sell’ rating. The future-based oil ETFs – BNO and USO – declined 47.8% and 41.7%, respectively. Russia ETFs Russian ETFs have seen horrendous trading this year thanks to several rounds of Western sanctions imposed on the country for invading Ukraine and the oil price collapse. The Russian ruble also saw a terrible decline against the greenback, losing about 50% since June. To combat the slide in the currency and reinvigorate growth, the Russian central bank has taken various measures. While direct currency intervention, minor rate hikes, and tightening supplies of the ruble did not bear any fruit, the central bank took a bold step this month by raising key interest rates rate from 10.5% to 17%, representing the steepest one-time hike in 16 years. The ruble has recovered slightly after the move but Russian economic growth still remains gloomy due to limited opportunities for investment, declining oil prices, rising inflation, weak deposit growth, soft earnings, falling consumer confidence and lack of growth drivers. Given this, Russia ETFs remained in investors’ eyes in the emerging/European market space in 2015. There are currently four non-leveraged ETFs targeting the Russian stocks – the Market Vectors Russia ETF (NYSEARCA: RSX ) , iShares MSCI Russia Capped ETF (NYSEARCA: ERUS ) , Market Vectors Russia Small-Cap ETF (NYSEARCA: RSXJ ) , and SPDR S&P Russia (NYSEARCA: RBL ) . All the products currently have a Zacks ETF Rank of 5 and are down in the range of 40-50% this year. U.S. Treasury ETFs While short-term Treasury ETFs have stayed almost flat this year, long-term products are leading the space. This trend is unlikely to continue next year as the Fed is on track to raise interest rates given a strengthening U.S. economy. Some market experts expect the first interest rate hike since 2006 sooner than expected in mid 2015, resulting in aggressive higher yields since 2009. According to the Wall Street message , 2015 would be disastrous for U.S. government bonds. In fact, the short end of the yield curve is rising faster than the long end and the spread between the 5-year and 30-year yields tightened to 109 bps from 220 bps at the start of the year, indicating that the yield curve is plateauing. As such, investors should take great precaution while trading in government bonds in the coming months. The three most popular Treasury funds – iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) , iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) and iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) are up 0%, 6.20%, and 22.14%, respectively. All these products have a Zacks ETF Rank of 3 or ‘Hold’ rating. SHY targets short end of the yield curve while IEF and TLT focus on mid-term and long-term government bonds, respectively. Bottom Line Investors should closely watch the developments in these spaces as we head into the next year and should tap opportunities as and when they come.