An ETF That Could Give T. Boone Pickens a Run for His Money
This article was originally published on ETFTrends.com.
TriLine Index Solutions, an affiliate of BP Capital Fund Advisors, is borrowing the name and expertise of oil tycoon T. Boone Pickens as they launch an ETF with an apropos ticker in honor of the business magnate.
On Wednesday, TriLine launched the NYSE Pickens Oil Response ETF (NYSEArca: BOON), which is indirectly controlled by Pickens. BOON has a 0.85% expense ratio.
"BOON was born out of the same idea that 'Picken's Plan' was founded on," Toby Loftin, Managing Principal at TriLine Index Solutions, told ETF Trends in a call. "It is all about America getting its own resources, or getting off OPEC, specifically."
The NYSE Pickens Oil Response ETF will try to reflect the performance of the NYSE Pickens Oil Response Index, which tracks companies that are positively correlated with changes in the price of ICE Brent Crude Oil Futures, according to a prospectus sheet. The indexing methodology hopes to provide broader exposure to energy-intensive industries, compared to traditional "energy" indices.
Some investors may be vaguely familiar with this strategy as it was inspired by BP Capital Fund Advisors' TwinLine Energy Fund.
"We have spent considerable time developing this methodology and are humbled to bring it to the ETF marketplace as an extension of T. Boone Pickens' legacy," Loftin said in a note. "We believe this approach better reflects the realities of the changes and future of global energy markets in a post-shale era."
Sub-industries included in the index cover traditional upstream energy producer, which include Exploration & Production, Oil Services, Refiners and Renewables industries as well as energy consumers for which rising demand for energy may signal an opportunity for growth in revenue, which include a variety of industries such as Aerospace & Defense, Chemicals, Homebuilding, Metal Fabrication, Transportation and Water industries.
Each security undergoes a correlation analysis of its total returns to the price return of Brent Crude over a variety periods from the most recent three months to the last five years. Those securities with high positive correlation in the top 40% for all time periods analyzed are eligible for inclusion.
"We hope to redefine the way people look at energy," Loftin added. "We know that the next generation of ETFs will be research-based."
The indexing methodology is intended to diminish the effect of the "boom and bust" periods of commodity cycles and attempts to diminish drawdowns while preserving upside potential.
"The investment strategy behind BOON aims to provide a higher Sharpe ratio compared to traditional energy ETFs, the S&P 500, and ICE Brent Crude Oil, as well as commodity-oriented indices and investment products," according to Triline Index Solutions. The high Sharpe ratio refers to the more attractive risk-adjusted return of the strategy.
The portfolio is equally weighted. Top current holdings include Southern Copper 1.4%, Anadarko Pete 1.4%, PDC Energy 1.4%, Noble Energy 1.4% and WPX Energy 1.4%.
For more information on new fund products, visit our new ETFs category.