OIH benefiting from higher oil prices


The momentum established by the energy sector last year continues in 2022, with the group once again ranking near the top among the 11 sectors of the S&P 500.

Predictably, this is a boon for oil services stocks and exchange-traded funds, such as the VanEck Oil Services Vectors ETFs (OHI B+). After a return of 21.3% in 2021, OHI is 27.28% higher year-to-date, reminding investors that oil services stocks are highly correlated to crude prices.

In fact, the relationship of OHI Oil price is one of the main factors determining ETF performance, and it is something that investors should not overlook.

“Because of this relationship, the oil services, and therefore OHI, have historically had a higher correlation and beta with oil prices than other more diverse sub-industries such as integrated companies or downstream segments such as refining. However, while the oil service industry is certainly dependent on oil prices, it is not the only factor,” writes Coulter Regal, VanEck associate product manager.

OHI follow the MVIS® US Listed Oil Services 25 Index (MVOHTR)and while the ETFs will not provide returns that exactly mirror those of spot oil prices, this is a credible equity-based avenue for investors seeking correlated crude exposure, because when oil prices are higher, producers tend to spend more on the services and technologies provided by OHI member companies.

Besides being a valid bet on oil prices, OHI also offers other advantages. These include inflation protection, which makes sense as natural resources stocks have historically performed well in a rising consumer price environment.

“One of the main advantages is protection against inflation. Energy-related stocks, such as oil service companies, have historically performed well in inflationary economic environments, which has become a growing concern for many investors lately,” adds Regal. “Another benefit is participation in global growth. Commodities and natural resources stocks (including oil services) can allow investors to participate in global growth as demand for energy increases around the world.

The usefulness of OIH as a tool to fight inflation is confirmed by the inclusion of the fund in the VanEck Inflation Allowance ETFs (RAAX). As indicated by his name, RAAX is designed to provide investors with exposure to a broad basket of investments that have a reputation for proving durable when inflation is at its peak. OHI represents 3.11% of the weighting of the actively managed fund.

Exposure to oil services “can potentially help provide some of the benefits highlighted in the question above, such as inflation protection, participation in global growth as well as diversification. In addition, due to its targeted exposure and liquidity, OHI can also be used tactically by investors to express a short- or long-term view with a highly liquid, low-cost ETF,” concludes Regal.

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