Is An Oil Sands ETF On The Horizon? - ETF News And Commentary
10 Fevereiro 2012 - 7:17AM
Zacks
Despite the current roadblocks to the Keystone Pipeline, many
investors still remain very bullish on the future of Canadian oil
sands. These oil containing rocks represent a possibly massive
source of hydrocarbons that are both right next door and in a very
friendly country as well. Thanks to these factors, as well as
triple digit oil prices and ever improving technology, the space
could be one of the few growth markets left for oil-focused
investors in North America.
In light of these trends, investors could soon see a new ETF
that tracks the space thanks to a partnership between Sustainable
Wealth Management and Exchange Traded Concepts. This proposed ETF
which just hit the wires in a recent SEC filing, looks to be called
the Sustainable North American Oil Sands ETF and trade under the
ticker symbol SNDS, assuming of course it can pass the regulatory
hurdles first. While many details were not released at this time,
such as the proposed expense ratio, we have highlighted some of the
key details from the filing below:
The proposed product looks to track the Sustainable North
American Oil Sands Index which is a benchmark of U.S. or Canadian
exchange-listed stocks that have active businesses in North
American oil sands. The provider defines this as firms that
participate in any of the following businesses related to the
market including; oil exploration, production, refinement,
marketing, storage, transportation, provision of equipment and/or
provision of services. It should also be noted that firms must have
a market cap of at least $3 billion and that securities will be
equally weighted in the benchmark. Additionally, firms do not have
to focus on the oil sands market to be included, giving the product
a basket of about 20-40 securities at any one time (also read Time
To Consider The Small Cap Oil ETF).
Currently, the underlying index holds 18 securities all of which
have weightings of approximately 5.56%. The basket includes a wide
range of firms including ADRs as well as more ‘traditional’ stocks
as well. Thanks to this, the fund has heavy exposure to both the
large, integrated oil firm sector—in the form of companies like
TOT, XOM, CVX, and COP—as well as smaller, more oil sands focused
firms. These companies include Baytex Energy
(BTE), Canadian Natural Resources (CNQ), and
Nexen (NXY), all of which obtain a great deal of
their revenues from the oil sands sector.
Additionally, investors should note that some major foreign oil
companies such as Statoil, PetroChina, and SinoPec all receive
allocations as well. Thanks to this heavy use of foreign and
integrated firms, one could certainly argue that the index may not
be the best pure proxy for oil sands production. This is because
many firms in the benchmark are exposed across the supply chain and
no not derive a significant portion of their revenues from oil
sands projects, although that is obviously not the case across the
index (read Does Your Portfolio Need A Coal ETF?).
Oil Sands ETF Competition
The only real competitor to this proposed oil sands ETF looks to
be in the form of the Guggenheim Canadian Energy Income
ETF (ENY). This fund tracks a similar index from
Sustainable Wealth Management, focusing in on the Sustainable
Canadian Energy Income Index. This benchmark is comprised of 34
stocks selected, based on investment and other criteria, from
approximately 200 TSX listed oil and gas sector securities
including royalty trusts, as defined by the TSX, and approximately
25 oil sands resource producers that are classified as oil and gas
producers (see A Closer Look At The Canadian Energy Income
ETF).
However, instead of just weighting based on market cap or a
similar metric, the product utilizes more of a tactical approach.
Depending on the observed price trend in crude oil, the fund will
cycle more into oil sands or high yield energy equities. When oil
is in a bull, 70% will be in oil sands firms while just 30% will be
in Canadian high yield energy equities and when the market is in a
bearish state, the percentages will reverse among the two
components (also read Forget WTI, Play Crude With This Oil
ETF).
This suggests that ENY will vary between having 30% and 70%
exposure to oil sands meaning that it is unlikely to be a direct
proxy for the market either. Additionally, it should be noted that
the fund has just over $119 million in assets while trading about
150,000 shares a day so while it has a nice lead in the space, it
is by no means insurmountable. Thanks to this, SNDS, if it is able
to pass the regulatory hurdles, could see some decent inflows from
those seeking more exposure to the space although it appears as
though competition for assets in the oil sands ETF world could be
increasing in the coming years, especially if the segment continues
to gain in popularity and size.
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Disclosure: long ENY.
BAYTEX ENERGY (BTE): Free Stock Analysis Report
CDN NTRL RSRCS (CNQ): Free Stock Analysis Report
CONOCOPHILLIPS (COP): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report
NEXEN INC (NXY): Free Stock Analysis Report
TOTAL FINA SA (TOT): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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