Analyse: Lyxor ETF STOXX Europe 600 Oil & Gas

Dieser ETF bietet Zugang zu Giganten wie BP, Total, Shell und Eni. Solide Dividenderträge stehen dem Problem endlicher Reserven gegenübern.  

Lee Davidson 07.12.2012

Rolle im Portfolio

The Lyxor ETF STOXX Europe 600 Oil & Gas ETF provides exposure to top-tier European-domiciled oil and gas producers. Given the nature of the oil and gas industry, the exposure gained through this ETF is not Europe-specific but rather driven by the global energy market. For firms in this index, their future success depends upon their ability to expand production at existing reserves and add new reserves. In recent years, however, global oil & gas supermajors -- like Shell, BP, and Total -- have found it increasingly difficult to expand production and add reserves as nations become more protective of their natural resources. In response, firms have begun to shift production away from oil towards the less lucrative liquefied natural gas. Therefore, an investment in this ETF signifies belief that firms in this index will be able to cope with and succeed in an environment with shrinking investable energy resources.

Over the past ten years, it appears that this index has offered some slight diversification benefits. During that time, the index exhibited moderately high correlations of 79% and 82% respectively with the MSCI World and STOXX Europe 600. Over the past three years, however, these correlations have been on the rise (reaching 94% in both cases). Risk on/off trading is a relatively recent phenomenon and can be simply defined as investors buying and selling everything en masse. Until risk on/off trading ceases to be a driving factor, would-be investors should be cognizant that diversification benefits of oil and gas equities will likely be less than historical norms.

Investors can deploy this ETF as a tactical tool to speculate on the prospects of the oil & gas sector. Additionally, the ETF can be used as a core holding to complement other energy exposure in a well diversified equity portfolio.

Fundamentale Analyse

Few assets have no immediate substitutes, are finite resources, and are so fundamental to the functioning of the global economy as crude oil and, to a lesser extent, natural gas. As such, the demand for each substance is unlikely to diminish anytime soon. Firms in the STOXX Europe 600 Oil & Gas index are responsible for the discovery, drilling, and transportation of these energy resources. As nations have become protective of their crude oil resources, several firms have been forced to reallocate more of their productive firepower towards liquefied natural gas (LNG). Royal Dutch Shell and Total have led the charge into LNG production and are currently the world's largest suppliers. Given the high fixed costs associated with both crude oil and natural gas production, many firms in this index will be susceptible to the price performance of Brent and WTI crude oils and natural gas.

Crude oil prices tend to be driven, by global economic activity, OPEC actions, and geopolitical events. In recent years, production and inventory levels for WTI have been on the rise primarily due to the completion of a transnational pipeline connecting Canadian oil reserves to the Cushing hub—where WTI prices are set. Additionally, the proliferation of horizontal drilling techniques across North America has increased oil well saturation, further boosting WTI inventories to levels well above their trailing five-year average at the time of this writing. When coupled with Brent oil supply disruptions in the Middle East during the Arab Spring in 2011 and political tensions associated with Iran in 2012, the widening of WTI-Brent price spread can be explained in large part by the huge supply of WTI and the event-driven shortage of Brent crude. Now that the Seaway pipeline running from the Gulf Coast to Cushing has reversed course, WTI supplies have begun to fall as export demand has been brought into the equation. Even still, however, the WTI-Brent spread has begun to widen considerably in the past few months as Brent supplies out of the North Sea tightened yet again on concerns over violence in Syria and the chance of a spillover into Turkey. Given the current market dynamics, few are predicting the spread ($20.9/barrel currently) to completely return to historical levels (-$1) by year-end.

Natural gas fuels power-generating plants, industrial complexes and households. In the U.S., natural gas will continue to be an energy source over the long-term due to the shortage of viable, cost-effective and prolific substitutes. Moreover, the adoption of "fracking" technology has enabled natural gas to be harvested in cheaper and more efficient ways--increasing supply substantially and driving down prices. In light of the precipitous decline in prices, natural-gas producers have cut back production slightly--which has marginally buoyed prices as demand normalises.

Overall growth for the oil and gas sector should be underpinned by growing demand for energy in China, India, the Middle East and Latin America. Increased oil demand in these regions should be driven by high (albeit slower) GDP growth. The biggest risk for firms in this index is a sustained drop in oil and gas prices.

Indexkonstruktion

The STOXX Europe 600 Oil and Gas index is constructed using a free float market-capitalisation weighting methodology applied to the 33 oil and gas sector constituents of the broad STOXX Europe 600 index. Underneath the oil and gas super-sector umbrella are the oil and gas producers, oil equipment/distribution, and alternative energy sub-sectors. The index is relatively top-heavy with the top five index constituents comprising around 75% of its value. The largest holding is BP (~22%), followed by Total (~15%), Royal Dutch Shell (~15%), Eni (~10%), and BG Group (~9%). Based on the firms' domicile, the index is biased towards the UK (38% of the index value), followed by France (18%) and the Netherlands (16%). However, most of these companies operate globally. Individual constituents weightings are not capped, but they are adjusted on a quarterly basis in March, June, September, and December as part of the review of the STOXX Europe 600. It is worth noting that this index provides indirect exposure to the oil commodity markets. Over the past 5 years, the STOXX Europe 600 Oil and Gas index has exhibited relatively high correlation (~71%) to the S&P GSCI Crude Oil Spot and the S&P GSCI Brent Crude Spot indices. Since most firms in the index are low-cost producers and conservatively geared, the index’s sensitivity to spot price variations will be less pronounced than oil producers with higher marginal costs and greater financial leverage.

Fondskonstruktion

The Lyxor ETF STOXX Europe 600 Oil & Gas Index uses synthetic replication to track the STOXX Europe 600 Oil & Gas Index. The fund uses unfunded swaps. Specifically, Lyxor puts together a basket of securities – generally European blue chip shares – and enters into a swap agreement with a counterparty (always Societe Generale), whereby the counterparty delivers the daily performance of the STOXX Europe 600 Oil & Gas Index in exchange for the performance of the fund’s holdings. In line with UCITS III requirements, counterparty exposure cannot exceed 10% of the fund’s net asset value at any point in time. According to our research, the OTC swap is not collateralised, which effectively exposes the investor to a loss of up to 10% of the NAV if the swap counterparty defaults. However, Lyxor is now committed to target zero swap exposure on a daily basis and is also considering the virtues of adopting an overcollateralised structure. No securities lending is implemented at the fund level. Dividends are accumulated throughout the year and held in a ‘cash bucket’ until they are distributed to fund holders once a year in September. This dividend treatment can potentially create a drag on returns in upward trending markets because dividends are not reinvested into the fund. In practice this cuts both ways. It could also result in outperformance if the benchmark falls.

Gebühren

The fund levies a total expense ratio (TER) of 0.30%. This lies in the middle of the range of ETFs providing equity exposure to the European oil & gas sector.

Alternativen

As of writing, there are many alternative ETFs providing equity exposure to European oil & gas companies. All of them generally track either the same index or a slight deviation thereof. The largest alternative in terms of total assets under management with EUR 143 million is the iShares STOXX Europe 600 Oil & Gas ETF (DE). iShares uses physical replication to track the reference index and levies a TER of 0.47%. However, the Lyxor product is slightly larger with EUR 148 million and equivalent average daily trading volume.

Investors preferring a more diversified geographical approach could make use of the Lyxor ETF MSCI World Energy. The index is biased towards the US, representing 54% of the index value. The Lyxor ETF uses synthetic replication and charges a TER of 0.40%.

 

Über den Autor

Lee Davidson  is an ETF analyst with Morningstar Europe.