Tuesday, June 25, 2013

Small-cap ETF Powers Up

Over the past decade exchange traded funds (ETFs) have become increasingly popular.  Like individual investors, professionals use ETFs to gain exposure to an asset class.  The smart guys are also using ETFs to hedge asset exposures of one ilk or another.  You and I are well aware of the going body of ETFs  -  over 1,400 and counting.  As many as 4% of households hold shares of ETFs and a good number more probably have used short positions in ETFs.   I conducted a casual poll of management teams and investor relations representatives at a recent investment conference in New York City.  None were even aware of whether their company’s stock was included in an index or ETF and seemed oblivious to that fact that the ways and means of exchange traded funds could be impacting the trading in their company’s stock.

I thought it might be interesting to pull back the curtain on an energy-focused exchange traded fund.  Beginning with the next post we will look at the holdings of Power Shares S&P Smallcap Energy (PSCE: Nasdaq).  The top ten holdings of this successful fund represent over 60% of the total portfolio.  Assets total approximately $27 million, leaving it among the smallest of ETFs.

% Assets
Gulfport Energy Corporation
Lufkin Industries, Inc.
Bristow Group Inc.
Exterran Holdings, Inc.
SEACOR Holdings Inc.
PDC Energy, Inc.
Geospace Technologies Corp.
C&J Energy Services, Inc.
Hornbeck Offshore Services
Stone Energy Corporation

PSCE has returned 15.5% since the beginning of 2013 and 58% since inception in 2010.  The fund currently yields 0.6% at a price of $39 and change per share.  The fund is not cheap with a price-earnings multiple of 18.0 times trailing earnings.  What is more volume is a less than impressive 11,000 shares per day.  Still it could be an economical way to gain or hedge exposure in the energy sector.  PSCE is based on the S&P Small-Cap 600 Capped Energy Index and is bound to invest at least 90% of its total assets in common stocks of small capitalization U.S. energy companies. The targets are engaged in oil and gas exploration, drilling, production, distributing or servicing energy related products.  The S&P Index is a float-adjusted, market-capitalization-weighted index reflecting the US small-cap market.  The index and so the fund is rebalanced and reconstituted quarterly.

The next post will feature Stone Energy Corporation (SGY:  NYSE).

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.



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