Energy, Small-Cap Style
Published on Tuesday, 10 April 2012 17:45 Written by Todd Shriber
When it comes to energy sector ETFs, it’s probably safe to say most investors have heard of the Energy Select Sector SPDR (NYSE: XLE), the Market Vectors Oil Services ETF (NYSE: OIH) and a few other large-cap focused funds. Not everyone knows there’s a small-cap answer to XLE and despite its diminutive stature, this fund is worth a look for investors seeking energy sector returns from more than just the usual suspects.
That fund is the PowerShares S&P SmallCap Energy Portfolio (NASDAQ: PSCE). The PowerShares S&P SmallCap Energy Portfolio is now two years old and debuted as part of a broader suite of small-cap sector funds introduced by PowerShares to act as complements and rivals to the Select Sector SPDRs. Home to 24 stocks, PSCE has just $68.8 million in assets under management indicating investors might be missing out on this fund’s story.
No, PSCE is not home to the likes of Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) and that’s the point. PSCE tracks the S&P SmallCap 600 Capped Energy Index and the ETF is home to a few stocks that avid energy sector traders and investors might be familiar with. Lufkin Industries (NASDAQ: LUFK) is the fund’s largest holding. Gulfport Energy (NASDAQ: GPOR) is another top-10 holding as is coal miner Cloud Peak Energy (NYSE: CLD).
Overall, PSCE’s top-10 holdings account for about 62% of the fund’s weight. PSCE is described as being home to companies that are "engaged in the business of producing, distributing or servicing energy related products, including oil and gas exploration and production, refining, oil services, pipeline, and solar, wind and other non-oil based energy," but with all of that said this is really an oil ETF and the comparison to XLE is relevant.
That may not make XLE shareholders and those that have ignored PSCE for the past two years too happy. You see, since PSCE debuted in April 2010, the fund has surged 38.4%. That’s more than double the returns offered by XLE offer the same time frame indicating that small-caps are legitimate way of playing rising oil prices.
And PSCE certainly does validate itself as a play on soaring crude prices. The much-maligned U.S. Oil Fund (NYSE: USO) is actually in the red over the past two years and that controversial ETF comes with an elevated expense ratio. On the other hand, PSCE has proven its mettle as a rising oil play and features an expense ratio of just 0.29%.
To top it all off, as a small-cap fund, PSCE is home to some credible acquisition targets. One could even argue that a quarter of the fund’s constituents could be taken over by larger rivals if energy sector M&A heats up again and that’s just an added bonus on top PSCE’s solid returns.
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