New ETF to track Canadian crude oil pricing

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A new exchange-traded fund player is entering Canada and will offer investors direct access to Canadian crude pricing, which has far outperformed the U.S. benchmark price for oil since mid-March.

Calgary-based Auspice Capital Advisors Ltd. will become the 11th player to provide ETFs in this country by launching the Canadian Crude Index ETF (symbol: CCX) on the TSX Tuesday.

ETFs already exist to gain exposure to the West Texas Intermediate (WTI) price of oil, which is traded in New York. But many Canadian producers sell their oil at Western Canadian Select (WCS) prices.

WTI prices have risen roughly 40 per cent from their lows on March 17 and traded above $60 (U.S.) a barrel this week for the first time since early December. But this pales in comparison to the roughly 75 per cent surge over the same period seen in the WCS oil price.

This has narrowed the discount on WCS relative to WTI from the norm of $17 a barrel to $8, Gluskin Sheff chief economist David Rosenberg said in a note last week. The reasons for the outperformance range from improved distribution of Canadian crude to the U.S., to rising demand from U.S. refineries – trends that are not expected to reverse in the near future, Mr. Rosenberg said.

The fund will provide investors' access to Canadian crude oil by tracking the performance of the Canadian Crude Excess Return Index, which is a transparent and liquid benchmark price for oil that is produced in Canada.

The ETF aims to provide returns that an investor would expect to receive from holding the contracts that comprise the benchmark index, said Tim Pickering, president and chief investment officer of Auspice Capital.

"The index represents a rolling three-month exposure that, while is in the most liquid Canadian oil contracts, also aims to minimize transaction costs and reduce the effects of negative roll yield caused by contango common in so many other energy products," Mr. Pickering said. Contango is when futures prices for a commodity are higher than current spot prices.

The ETF does not employ leverage, but in order to achieve its investment objectives, CCX will invest in derivatives and other financial instruments, which may include interest-bearing accounts and Treasury bills.

"Long term, we are reasonably bullish when you look at commodities and they have been very beat up over the last nine months. And energies are a subset of commodities, which has been equally, if not more, beat up," Mr. Pickering said. "Looking at the long-term prospects for commodities as a whole, I am quite optimistic that it is a decent time to be looking at that asset class in general."

The management fee for CCX is 0.65 per cent and Auspice Capital, which has launched several other ETFs through third party providers, will manage the fund independently.

Auspice plans to launch a second ETF in coming months: the Canadian Natural Gas Index ETF. The natural gas ETF will track the price of natural gas produced in Canada through the Canadian Natural Gas Excess Return Index.