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Sustainable Wealth Management has become the latest company to partner with Exchange Traded Concepts to debut an ETF, announcing this week the launch of the North American Oil Sands ETF (SNDS). The new fund will seek to replicate the Sustainable North American Oil Sands Index, a benchmark that includes companies with operations focusing on oil exploration, production, refinement, marketing, storage and transportation. The underlying index consists of Canadian or U.S.-listed stocks, with the roster ranging between 25 and 40 components depending on the depth of the market. The index is equal weighted [see How To Screen Energy ETFs].

Oil Sands 101

The oil sands, also known as the “tar sands,” refers to sandstone that contains a blend of water, sand, clay and petroleum. Though there are considerable oil sands found in parts of eastern Europe, the largest quantities are located in Canada–specifically the province of Alberta. Until recently, oil sands weren’t considered as part of global oil reserves. But new technologies (and higher prices of oil) have made it possible and profitable to extract fuel from these types of deposits. The oil sands estimated to be recoverable by the government of Alberta account for about 95% of Canada’s oil reserves and close to three-quarters of North American reserves.

“The Canadian oil sands represent the majority of proven oil reserves outside of OPEC nations; the sands are the top supplier of crude oil to the U.S. and are rapidly expanding production capacity over the next decade,” said Derek Gates, CFA, founder of Sustainable Wealth Management. ”Companies invested in the development of Canada’s oil sands stand to be key beneficiaries of these trends.”

Oil sands stocks are also known to pay relatively attractive dividend yields; at the end of May, the underlying index had a dividend yield of about 3.2% [see Dividend ETF Special: 25 High Yielding Funds].

Under The Hood

Many of the components of SNDS are large, well-known companies that are engaged in more traditional drilling and refining activities as well. Stocks such as Marathon (NYSE:MRO), ExxonMobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A), Conoco Phillips (NYSE:COP) and Chevron (NYSE:CVX) all make appearances in the fund, as well as international stocks such as PetroChina, Statoil and Total.

The underlying index can exhibit significant volatility, often taking its cues from oil prices. Not surprisingly, the benchmark tumbled during May as crude prices declined and general economic uncertainty weighed on prices. Over the past year, the index to which SNDS is linked has twice posted monthly swings of more than 10% on three different occasions:

Date SNAOSI Index Monthly Gain/Loss Monthly % Change
May-31-2012 $245.08 -$37.51 -13.27%
Apr-30-2012 $282.59 $3.69 1.32%
Mar-31-2012 $278.90 -$15.54 -5.28%
Feb-29-2012 $294.44 $13.91 4.96%
Jan-31-2012 $280.53 $6.97 2.55%
Dec-31-2011 $273.56 $3.55 1.31%
Nov-30-2011 $270.01 $1.69 0.63%
Oct-31-2011 $268.32 $35.02 15.01%
Sep-30-2011 $233.30 -$37.99 -14.00%
Aug-31-2011 $271.29 -$22.91 -7.79%
Jul-31-2011 $294.20 -$5.35 -1.79%
Jun-30-2011 $299.55 -$9.63 -3.11%

Comparing Oil Sands ETFs

SNDS is the second U.S.-listed ETF to offer exposure to the oil sands industry, joining the Guggenheim Canadian Energy Income ETF (NYSEARCA:ENY). That fund, which debuted in 2007 and has about $90 million in assets under management (AUM), is also linked to an index maintained by Sustainable Wealth Management.

ENY is unique because its allocation between oil sands companies and high-yield energy equities shifts based on prevailing crude oil prices. When crude is determined to be in a bull phase (as judged based on four quarter moving average price) the allocation is 70% oil sands/30% high-yield energy equities. When oil is in a “bear phase” the allocation is reversed to only 30% in oil sands.

SNDS will charge an annual expense ratio of 0.50%; ENY charges an annual expense ratio of 0.65%.

Disclosure: No positions at time of writing.

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Source: Sustainable Wealth Management Launches Canadian Oil Sands ETF