Canada’s oil sands is the third-largest deposit of oil on earth with more than 170 billion barrels of recoverable oil and potential resources of up to 1.8 trillion barrels. The reserves are concentrated in the province of Alberta in 3 major deposits: Athabasca, Cold Lake and Peace River with the Athabasca region holding over 80 per cent of the original oil in place. Canada could emerge in the top 3 producers with more than 3.1 million bpd of oilsands production by 2020 according to the Canadian Association of Petroleum Producers annual forecast. Bitumen will dominate Canada’s production growth as it is expected to double up from 1.6 million bpod in 2011. The IEA expects global demand for oil to reach 100 million bbls/d by 2030 up from 85 million bbls/d in 2008, an annual growth rate of approximately 1%.
On top of its massive bitumen reserves, Alberta is the center of major energy marketers and utilities.
Canada’s oil sands provide investors with access to a massive resource base that is politically stable and has a long reserve life. But rather than spend a significant amount of time picking the best oil sands stocks, the following ETFs make it very easy for investors to gain a healthy exposure to Canada’s oil boom.
iShares Oil Sands Index ETF (TSX: CLO)
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If you’re up for some cross border shopping, nothing beats going to the source with a Canadian listed oil sands focused ETF. This Oil Sands Sector Index ETF is designed to capitalized on Canada’s huge oil sands reserves providing 100% exposure to the sector. Launched in October of 2006, the fund reflects the performance, net of fees, of the Oil Sands Sector Index. The index measures the performance of companies whose operations in the North American oil sands include oil exploration, production, refinement, marketing, storage or transportation.
In addition to having operations in the North American oil sands, eligible constituents for the Index are screened according to market capitalization and liquidity requirements. These are senior companies with current and future production in one of the largest oil reserves in the world.
The USD/CAD exchange rate might, in some periods, provide an edge when the USD is stronger particularly when the sector is going through a lower oil price cycle as the USD often ends up stronger than the CAD. This ETF offers both a lower yield (~2%) and a lower average daily trading volume than its US peer ENY below.
The Guggenheim Canadian Energy Income ETF (NYSE: ENY)
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ENY seeks to replicate, net of expenses, the performance of the Sustainable Canadian Energy Income Index. This equity index is 100% Canadian with a 100% weighting to energy. The fund holds more than 30 stocks selected using a proprietary method with several oil sands companies sitting in the top 10 holdings such as Suncor and Canadian Oil Sands.
Live ONE YEAR Chart of the Guggenheim Canadian Energy Income ETF– Symbol ENY
The index uses a unique proprietary selection method that aims to combine high yielding Canadian energy related securities with highly focused fast growing oil sands producers. The asset allocation model shifts according to the trend in crude oil prices:
- In a bull phase the weighting is 70% oil sands and 30% Canadian high yield energy related equities. (current quarter’s closing price for oil is above the previous 4 quarters)
- In a bear phase the weighting is 70% oil sands and 30% Canadian high yield energy related equities. (current quarter’s closing price for oil is a or below the previous 4 quarters)
The juicy dividend combined with the higher liquidity makes ENY an obvious choice over CLO. Furthermore, given that oil prices are the biggest risk to the sector, ENY is better equipped to weather commodity price volatility since its holdings shift according to the prevailing trend. By replacing oil sands stocks with pipeline stocks, the fund gets to enjoy more stability along with receiving the quarterly distribution. If you are looking for a more balanced Canadian weighting in a fund be sure to check the list for oil stocks ETF.
Disclaimer: the information presented above is only for informative purposes. It is in no way an encouragement to buy or sell the aforementioned securities.