By Eric Dutram
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 Total (TOT), Exxon Mobil (XOM, Chevron (CVX), and ConocoPhillips (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 (STO), PetroChina (PTR), and SinoPec (SHI) 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 do not derive a significant portion of their revenues from oil sands projects, although that is obviously not the case across the index.
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.
Disclosure: long ENY.
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