ETF Showdown: Two Unheralded Oil Plays

For all the attention that oil gets in the mainstream media and for all the gushing (no pun intended) analysts and pundits do about oil equities and ETFs, there are still names in this universe that are still fairly anonymous. To be fair, that may be a symptom of numbers. There are hundreds of oil stocks out there and the ones with largest market caps will always get the most attention. A similar trend has emerged in the ETF universe. Equity-based ETFs that focus on energy's biggest names grab the most fanfare. For better or worse (probably worse), that's the way energy investing cookie crumbles, but our latest ETF Showdown puts the spotlight on two oil ETFs worth looking at, neither of which get much love, the PowerShares S&P SmallCap Energy ETF PSCE and the Jefferies TR/J CRB Wildcatters Exploration & Production Equity ETF WCAT. As you can probably tell from their names, PSCE and WCAT aren't your grandfather's energy ETFs. You won't be finding Chevron CVX and Exxon Mobil XOM in either of these funds. These are ETFs for the real risk-takers among oil investors. WCAT, which made its debut in January 2010, has an expense ratio of 0.65% and holds 67 stocks of companies that search for oil where no oil has previously been found. Hence, the heightened risk and the term “wildcatter.” Some of the ETF's holdings that may ring a bell are Energy XXI EXXI, McMoRan Exploration MMR and Progress Energy PRQ. PSCE made its debut roughly a year ago as part of the suite of small-cap sector ETFs PowerShares rolled out to be the small-cap alternatives to SPDRs ETFs. The ETF holds just 21 stocks, but an expense ratio of just 0.29% is quite inviting. Familiar names here include Holly HOC and Hornbeck Offshore HOS. Neither WCAT nor PSCE disappoint in terms of returns, as the ETFs are up 23% and 52% in the past year, respectively. That means WCAT lags XLE, which is easily the more conservative play, but PSCE, easily more risky than XLE, sharply outperformed its large-cap peer. WCAT's performance puts it inline with the iShares Dow Jones US Oil & Gas Exploration & Production Index Fund IEO, but again PSCE easily trumps IEO's gains and those offered by the SPDR S&P Oil & Gas Exploration & Production ETF XOP. In the past year, both WCAT and PSCE have also outperformed the Oil Services HOLDRs OIH, but again, PSCE has done so by a much wider margin. The bottom line is this: Both PSCE and WCAT offer nice complements to a large-cap energy ETF within a portfolio, but the returns offered by PSCE are just too compelling to ignore, and that's enough for the ETF to be the winner of this ETF Showdown.