On Tuesday, Venezuelan Vice President Nicolas Maduro confirmed that President Hugo Chavez passed away, ending a two-year bout with cancer. Chavez, 58, controlled Venezuela, South America's largest oil producer, for 14 years. Frequently an antagonist of the U.S., Chavez even blamed the U.S. for orchestrating a 2002 coup aimed at toppling his regime.
With Chavez's passing, investors and traders with exposure to Latin America are perhaps hoping a new regime, one with more free market principles, comes to power in Venezuela. As has been previously noted, only a few bond ETFs offer U.S. investors any form of Venezuela exposure.
With no equity-based Venezuela ETF currently on the market, the iShares Emerging Markets High Yield Bond Fund (BATS:EMHY) acts as a bond alternative to tapping into Venezuela. The fund features an allocation of almost 17.5 percent to the South American nation, according to iShares data.
On the equity-based front, investors have a couple of options, stretches as they may be. Start with the iShares S&P Global Energy Sector Index Fund (NYSEARCA:IXC).
Not only is Venezuelan Latin America's largest oil producer, it is a member of the Organization of Petroleum Exporting Countries. And not only is Venezuela an OPEC member, but it is home to the largest oil reserves in the world. Yes, even larger than Saudi Arabia's. Some estimates pin the number at 256 billion barrels. Add to that, the country is home to the largest natural gas reserves in the Western hemisphere.
Despite its abundance of oil riches, Venezuela long ago nationalized its oil industry and foreign firms operating there during Chavez's reign faced myriad challenges. For example, in 2011 the country's energy ministry threatened some Western oil companies with loss of their exploration rights if they did not boost production.
Back to the iShares S&P Global Energy Sector Index Fund. This ETF and its rival, the smaller SPDR S&P International Energy Sector ETF (IPW) are ideally positioned to take benefit if Venezuela embraces a new form of government and opts to act as a partner with rather than a dictator to Western oil companies.
IXC, which has just over $1 billion in assets under management, devotes about 28 percent of its weight to Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and BP (NYSE:BP). In addition to the Boscan Field, Chevron has operations in the Plataforma Deltana region and in the Gulf of Venezuela.
Exxon's Cerro Negro in Venezuela was seized, but with the company's need to bolster oil reserves and production, it is not a stretch to see the largest U.S. oil company warming to Venezuela once again if the circumstances are favorable.
BP does not have a major Venezuelan presence, but after selling scores of assets in the wake of the 2010 Gulf of Mexico spill, Europe's second-largest oil company is looking for avenues to increase production.
Other IXC constituents that previously had or currently maintain a Venezuelan footprint include Total (NYSE:TOT), ConocoPhillips (NYSE:COP), Eni (NYSE:E) and Petrobras (NYSE:PBR). Those four stocks combine for another 9.4 percent of IXC's weight.
As for IPW, that ETF features no exposure to U.S. companies, but BP, Total and Eni combine for almost a quarter of the ETF's weight, giving the fund some leverage to the Venezuela oil story. Additionally, Royal Dutch Shell (NYSE:RDS.A) has done business in Venezuela for a century. Two different Shell securities combine for over 16 percent of IPW's weight.
Bottom line: There are no guarantees these stocks and ETFs will react immediately to the Chavez news, but the two funds are worth monitoring, particularly in the event of legitimate Venezuelan regime change.
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