Global X, the New York-based ETF issuer that already offers sector-specific China and Brazil funds and a number of ETFs focused on commodity-intensive equities, continued to expand its pipeline; the firm recently made an SEC filing laying the groundwork for an oil equities ETF. Although details from the filing were scarce, there were a few revelations:
The fund will track the Solactive Global Oil Equities Index, a global benchmark tracking firms engaged in the production and refinement of crude oil around the world. This index is free float adjusted, liquidity tested and market capitalization-weighted index that is designed to measure the performance of oil companies globally that are highly correlated with the price of oil, as defined by Structured Solutions AG. Currently, the index has 25 component securities.
The proposed fund would enter into an already crowded corner of the ETF market; currently, there are over 40 ETFs in the Energy Equities ETFdb Category with over $23 billion total AUM. While there are a number of funds in this category that focus on unrelated industries–such as coal or clean energy–all of the top five funds by AUM are focused in on the oil & gas sector. Additionally, the fund will likely face competition from a number of funds in the Commodity Producers Equities ETFdb Category, especially from the broad ‘hard asset’ funds such as the Market Vectors RVE Hard Asset Producer ETF (HAP) and the Jefferies TR/J CRB Global Commodity Fund (CRBQ). Both of these products offer heavy exposure to oil producers, including at least three of the top ten holdings in each of the funds [see Ideas For Contango Free Commodity Access]. However, the proposed Global X product may be able to differentiate itself by a heavy focus on the international sector.
Although oil prices crashed after the financial crisis, they have surged back in recent months thanks to strong demand from emerging markets and a weaker dollar. This has helped push the price of a barrel of crude back to within striking distance of its 52 week high, and possibly back above the $100/bbl. level. The proposed oil equities ETF could offer exposure to a variety of companies in emerging nations where oil reserves have yet to be tapped into. These countries–such as Brazil and China–are finally beginning to exploit their oil fields as demand for energy commodities to fuel red-hot economies has steadily climbed [read Emerging Market ETFs: Seven Factors To Consider].
Global X already offers 17 ETFs, and has been one of the fastest growing issuers of 2010. Currently, the company has five commodity products, including the ultra-popular Global X Silver Miners Fund (SIL) and the Global X Uranium Fund (URA) [see all the ETFs from Global X here].
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Disclosure: No positions at time of writing.