The energy sector has not been favorable to investors in 2014 and 2015, due to slumping oil prices. Although oil prices have rebounded somewhat in 2016, the commodity is trading at roughly half the price it was in June 2014. One particular subsector of the energy sector benefiting from low oil prices is refining, as it is negatively correlated with the commodity’s price; oil is a key component for processing petroleum products such as gasoline. Cheaper oil has therefore increased refiner profit margins, fueling their stock prices.
Investors who are looking to gain exposure to the refining and gasoline subsector, often called the downstream side of oil, may want to consider the following exchange-traded funds (ETFs).
VanEck Vectors Oil Refiners ETF
The VanEck Vectors Oil Refiners ETF (NYSEARCA: CRAK) was launched by Market Vectors in August 2015. The fund seeks to replicate the performance of the MVISA Global Oil Refiners Index, minus fees and expenses. It invests the majority of its assets in stocks that are constituents of the index. Stocks included in the index generate a minimum of 50% of their revenue from oil refining. The ETF's top four holdings are Reliance Industries Ltd. ADR (OTC: RLNIY) at 8.27%, Phillips 66 (NYSE: PSX) at 8.03%, Marathon Oil Corp. (NYSE: MRO) at 6.97% and Valero Energy Corp. (NYSE: VLO) at 6.84%. These companies account for 30.11% of the fund’s portfolio. The ETF has strong exposure to refining production, logistics and marketing through its top holdings. Operations of these companies have a geographic focus on North America but also offer exposure to India, Europe, Africa, Canada and the United Kingdom.
The VanEck Vectors Oil Refiners ETF has $3.73 million in net assets and an expense ratio of 0.59%, slightly more expensive than the category average of 0.45%. As of July 1, 2016, the fund had returned negative 6.13% year-to-date (YTD), negative 7.95% over the past three months and negative 2.01% over the past month.
Invesco Dynamic Energy Exploration & Production Portfolio ETF
The Invesco Dynamic Energy Exploration & Production Portfolio ETF (NYSEARCA: PXE) attempts to track the Dynamic Energy Exploration & Production Intellidex Index. The fund invests a minimum of 90% of its assets in stocks that represent the benchmark index. It was formed in 2005. Three of the ETF's top 10 holdings provide direct exposure to refineries and account for roughly 15% of its portfolio. These stocks include top holding Marathon Petroleum at 5.50%, Phillips 66 with a weighting of 5.01% and Valero Energy Corp. with an allocation of 4.76%. Other notable refiners in the ETF's portfolio of 30 stocks include Tesoro Corp. (NYSE: TSO) and Western Refining Inc. (NYSE: WNR). This ETF may benefit from increased refiner margins from lower production costs and associated logistical needs, such as the transportation of gasoline.
The Invesco Dynamic Exploration & Production Portfolio ETF has an expense ratio of 0.64% and provides a dividend yield of 2.85%. It has net assets of $67.28 million. The ETF had returned negative 1.68% over the past five years, negative 8.10% over the past three years and negative 0.88 YTD as of July 1, 2016.
iShares U.S. Oil & Gas Exploration & Production ETF
The iShares U.S. Oil & Gas Exploration & Production ETF (NYSEARCA: IEO) was created in 2006. Its objective is to track the Dow Jones U.S. Select Oil Exploration & Production Index. It attempts this by investing the majority of its assets in stocks that make up the underlying index. The ETF's top four holdings are ConocoPhillips (NYSE: COP) at 11.04%, EOG Resources Inc. (NYSE: EOG) at 9.32%, Phillips 66 at 7.57% and Anadarko Petroleum Corp. (NYSE: APC) at 5.54%. It dedicates 26.13% to the portfolio to the oil and gas refining and marketing sector that sees it poised to benefit from cheaper gasoline production, taking advantage of increased oil supplies.
The iShares U.S. Oil & Gas Exploration & Production ETF has $371.14 million in net assets and pays investors a dividend yield of 1.75%. It has an expense ratio of 0.43% and an average daily trading volume (ADTV) of 217,164. As of July 1, 2016, the ETF had a five- and three-year annualized return of negative 2.79% and negative 6.04%, respectively. It had returned an impressive 9.31% YTD.