Legendary energy investor T. Boone Pickens recently announced the closure of his hedge fund, BP Capital, but the famed wildcatter is lending his name to a new exchange traded fund.
The NYSE Pickens Oil Response ETF (NYSE: BOON) debuted Wednesday. The ETF tracks the NYSEPickens Oil Response Index. That benchmark is an equal-weighted index designed to objectively identify and select stocks from market segments that have demonstrated a high correlation to changes in the price of ICE Brent Crude Oil, according to the New York Stock Exchange.
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BOON, the ETF, looks to hold investments that have higher Sharpe ratios than Brent crude, the S&P 500 and traditional energy ETFs.
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Traditional energy ETFs such as the Energy Select Sector SPDR (NYSE:XLE) are usually cap-weighted funds and are heavily allocated to integrated oil companies and exploration and production firms, limiting the scope of the funds' energy exposure. For example, Dow components Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) can combine for up to 40 percent of run-of-the-mill energy ETFs.
On the other hand, none of BOON's 81 holdings command more than 1.44 percent of the rookie ETF's weight. Well-known members of BOON's roster include Anadarko Petroleum Corp. (NYSE:APC), Noble Energy Inc. (NYSE:NBL) and Fluor Corp. (NYSE:FLR).
BOON's underlying index includes not only traditional energy companies, but also firms that are 'energy-intensive' end users of energy who have the potential to benefit from the abundance of U.S. supply as well as growing global demand for energy, according to a statement. The inclusion of end users is intended to lessen the effect of the 'boom and bust' nature of commodity cycles and attempts to mitigate downsize capture while preserving upside capture.
BOON comes to market just as U.S. oil output is soaring. In November, U.S. oil production reached a record, and the U.S. is close to passing Saudi Arabia and Russia for the title of world's largest oil producer. By some estimates, U.S. crude output could hit 11 million barrels per day later this year.
BOON charges 0.85 percent per year, or $85 on a $10,000 investment, making it pricier than traditional energy ETFs.
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