In continuing with the recent product development wave of June, Sustainable Wealth Management has entered the ETF fray with its first fund. The product looks to target the in-focus North American Oil Sands market, giving investors broad exposure to the space.
The ETF trades under the name of the Sustainable North American Oil Sands ETF charging investors 50 basis points a year in fees for its services. The product takes an equal weighted approach, holding about 18 securities in total.
This is done by tracking the Sustainable Wealth Management North American Oil Sands Index which is designed to measure the performance of companies whose operations in the North American oil sands include oil exploration, production, refinement, marketing, storage, transportation, provision of equipment, and provision of services (see Inside The Forgotten Energy ETFs).
In order to be eligible for this benchmark, companies must be traded on a North American exchange and have 100-day average trading volume of at least $5 million. The index may include MLPs and is rebalanced at the end of the quarter, ensuring that the product maintains its equal weighted structure.
With this focus, the fund has a nice mix of giant caps, ADRs, and small companies that have a great deal of exposure to the space. For example, the basket includes U.S. giants like ExxonMobil and Chevron, but it also includes foreign multinational oil companies such as Royal Dutch, PetroChina, and Total.
Yet beyond these large caps, a few small and mid-sized companies also make their way into the product as well. These include Baytex Energy, Canadian Natural Resources, and Nexen, just to name a few (see Three ETFs for The Energy Efficiency Boom).
Clearly, the product will not be entirely dependent on the oil sands market, suggesting that the ETF may be safer than what many investors are expecting. However, growth in the oil sands may not directly translate into solid gains for this ETF either, as a large chunk of the fund is likely to move thanks to broad oil market trends and geopolitics outside of the North American bubble.
Still, the product could be an interesting way to play an increasingly important industry that is vital to hydrocarbon growth in North America. After all, not only is the region incredibly stable from a political perspective, but it offers up a way to help shift the balance of power in the current OPEC/Russia dominated scene, offering up more oil supplies in the Americas.
"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. Companies invested in the development of Canada's oil sands stand to be key beneficiaries of these trends," explains Derek Gates, CFA, founder of Sustainable Wealth Management, the index provider for SNDS in a press release.
"SNDS is designed to give investors global energy sector exposure with growth prospects and potential for an above average investment yield." (read 11 Great Dividend ETFs)
While many environmentalists are still lukewarm on the idea—to say the least—it appears to be storming ahead nonetheless. However, it should be noted that due to difficult and often expensive technologies, the cost of extracting the oil can be higher than more conventional sources of fuel meaning that profit margins could get tight if oil slides back into the doldrums.
ETF Competition
Still, investors should note that the product could face severe competition from some other energy-focused ETFs already on the market. In particular, the Market Vectors Unconventional Oil & Gas ETF could be a big one in this regard.
The fund tracks companies that are engaged in any number of 'unconventional' sources of oil or gas. This goes beyond just oil sands and looks at coalbed methane, coal seam gas, tight sands, and shale gas as well (see more on ETFs at the Zacks ETF Center).
As such, it may not be the purest competitor, but with a similar expense ratio (0.54%) and only a few months on the market it could offer up a decent challenge to the just launched SNDS.
Despite this competition, SNDS could still be an interesting pick for those looking for a focus on oil sands with the safety of large caps as well. Furthermore, the launch comes at an interesting time for those seeking to capture assets in the energy space as oil prices have been notoriously weak as of late (read Time to Buy Oil and Gas Services ETFs?).
Additionally, the fund's name of 'Sustainable North American Oil Sands' is likely to come across as an oxymoron to many even though it stems from the name of the firm, Sustainable Wealth Management, instead of sustainable practices in oil sands.
Thanks to these issues, SWM could have a tough fight in terms of garnering assets for its first fund. However, if oil prices can turn around and if the shale focus can outperform broad markets, SWM could eventually have a winner on its hands with this new product.
Eric Dutram
Zacks Investment Research
