Equity investors betting on a rebound in oil are buying shares of smaller drillers and service companies, anticipating a quicker response to changes in crude prices than their larger rivals, Bloomberg reported Feb. 24.

Investment into exchange-traded funds (ETF) with energy stocks have fallen on a monthly basis from a record $3.13 billion in December, according to data compiled by Bloomberg. At the same time, bargain hunters are increasingly supporting smaller companies such as Energy XXI Ltd. (NASDAQ: EXXI) and Sanchez Energy Corp. (NYSE: SN), rather than companies like ExxonMobil Corp. (NYSE: XOM), the data show.

State Street Corp.’s small- to mid-cap SPDR S&P Oil & Gas Exploration ETF gained a record $696.6 million in January, making it a top-10 fund for the first time in almost a year. Similarly targeted ETFs also gained. The shift comes as the Brent oil price has risen 32% from a five-year low of $45.19 a barrel (bbl) in January.

“People are tailoring the ETFs to meet their investment thesis more than they used to,” said Ryan Issakainen, a strategist at First Trust Advisors LP in Wheaton, Ill. “If their thesis is a recovery in the price of crude oil, they’ll want something more sensitive to oil prices like exploration and production companies than Exxon.”

The steep plunge in prices that began last year slowed as oil and gas companies cut costs and fire tens of thousands of workers to cope with less revenue. ETFs, which allow broad bets across a sector with lower transaction costs than buying individual stocks, are increasingly seen as a bellwether of investor sentiment. The funds offer the opportunity to invest in a basket of stocks by buying a single ETF share.

Commodity Exposure

Among 508 ETFs following the 12 industrial sectors, energy funds have attracted the most money this year—$3.16 billion as of Feb. 23. Last year, they had the most money flow in of any sector after real estate funds. Energy ETFs have recovered almost all of the net asset value they had on June 19, when oil reached its 2014 peak of $115.71/bbl.

Smaller producers can be more exposed to commodity price swings, so investors who think oil is on the rise are seeking to capitalize on that climb. Bigger, vertically integrated companies like Exxon, which refine and sell fuels in addition to finding oil, can be buffered from some of the most extreme price swings.

SPDR S&P Oil & Gas, which holds shares in producers like Energy XXI and Sanchez Energy, has added $572 million from investors this year, increasing its net asset value by more than half.

Fund Withdrawals

Energy XXI, a Gulf Coast energy producer, fell 88% last year and Sanchez dropped 62%. Exxon, meanwhile, declined 8.7%. Sanchez’s price-to-earnings ratio is 92, compared with Exxon’s 12.

That money can also get pulled back—the fund had withdrawals of $102.7 million in the past week as oil prices took another dip.

“Some of the flows, especially into some of these more price-sensitive ETFs, might be a bit shorter term, just trying to average in and get exposure when prices are low,” Issakainen said. “That’s more of a tactical investment.”

Other smaller ETFs have also gained investment funds. The First Trust ISE-Revere Natural Gas Index Fund, a basket of 26 producers, attracted a “respectable” $20.8 million in new investment this year, Issakainen said. That compares with withdrawals of $17.5 million last year.

Market Vectors Oil Service ETF, which holds shares in companies that help others find and produce oil and gas, has attracted $194.5 million this year. Its stocks include Schlumberger Ltd. (NYSE: SLB) and Halliburton Co. (NYSE: HAL), two oil services companies that have announced more than 15,000 in combined job cuts.