A New ETF for Canada’s Oil Sands

07/16/2012 7:45 am EST

Focus: ETFs

Sustainable Wealth Management’s Derek Gates discusses his firm’s newly launched ETF focusing on the Canadian oil sands. He also gives an overview of what developments he sees for the energy sector.

Kate Stalter: Today I’m on the phone with Derek Gates, founder of Sustainable Wealth Management. Derek, you recently launched a brand new ETF. Tell us a little bit about why you launched this, and what’s the strategy behind it.

Derek Gates: Thanks. The actual ticker symbol is Sustainable North American Oil Sands ETF (SNDS) and it was launched on June 12. It’s our flagship oil sands ETF.

We’ve had three ETFs before, and they’ve been focusing on the producers of the oil sands. This one’s our most broadly diversified ETF, where it focuses not only on production, but also the infrastructure and the engineering companies and all the things that make the oil sands work.

Kate Stalter: Talk a little bit about the index that’s behind this ETF.

Derek Gates: This index is based on one of our most broadly diversified oil sands ETFs. That’s focusing on the major categories, including exploration and production, integrated oil and gas, equipment and services, as well as refining and marketing of oil.

And what it does, it allows only the largest companies into the index. They must have above $3 billion in market cap to qualify. They have to trade at least 5 million shares a day on average, and also they have to be focused on the oil sands or have some focus on the oil sands. They could range from countries both in Canada, the US, as well as Europe and Asia.

Kate Stalter: This is not the only ETF that your company has launched, is it?

Derek Gates: That’s right. Back in 2007, we had three launches. There was a launch in Europe, in Switzerland, under the symbol OILSN, as well as in the US under Guggenheim Canadian Energy ETF (ENY) on the New York Stock Exchange. And that one was focused in on the energy and income sector of Canada, and it had a very good yield, as well as the focus on the oil sands with a tactical asset allocation.

Kate Stalter: Can you give us your take on what you’re seeing overall in the energy sector? Obviously, this is something that gets a lot of intention in the media, but individual investors are very concerned about this, as well. What trends are you seeing right now?

Derek Gates: The biggest trend is that technology is increasing production tremendously. We’ve seen it in natural gas. It also exists in oil, but it hasn’t been applied as much as you seen with natural gas.

What you’ll probably see in the next ten to 15 years is countries like Canada and others that are using unconventional techniques will increase their production and reserves tremendously, lessening our dependence on OPEC countries.

Kate Stalter: Let’s talk about not only the new ETF, but the existing ones. How do you envision investors incorporating these into an overall portfolio?

Derek Gates: What I think is interesting about the oil sands is that you can actually target different areas that are going to benefit. Right now we’re going through a major construction boom, just like we had back in 2007. That benefited the companies that did the engineering work, the infrastructure work.

Then after that, the production comes onstream, and then it benefits the producers. People who like the production side, they tend to like my iShares Oil Sands ETF (Toronto: CLO). Then if you like the infrastructure play or just the yield play, the ENY fits in very well. If you want the most diversified, SNDS covers everything.

Kate Stalter: Do you find the ETF are mostly bought by individuals for their accounts, or are advisors putting their clients into these?

Derek Gates: I think advisors are the main investors, and the ones that have been establishing the five-year track records.

I think what you find is that individual investment advisors who are focused on the energy sector don’t want to take a chance with what I call gambler’s ruin, where you’re right on the sector, but then you pick the wrong company in it. And those are the ones that tend to be the followers of these ETFs.

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