A Look Under The Hood At The Jefferies Wildcat ETF

The Jefferies TR/J CRB Wildcat ETF (NYSE: WCAT) is a new entrant to the world of oil ETFs and the timing of this offering is interesting to say the least. Consider that the cost of exploring for oil in areas where there are unproven reserves is rising and WCAT makes for an ETF whose performance is worth watching at the very least.

That's not an endorsement nor is it a recommendation to short the newly minted ETF. WCAT made its debut on January 22 and is flat in that time. So is the Oil Services HOLDRs (AMEX: OIH), the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP), the Energy Select Sector SPDR (NYSE: XLE) and the iShares Dow Jones US Oil & Gas Exploration Index (NYSE: IEO).

Given that WCAT focuses on on mid and small-cap names and those other ETFs focus on large-caps, one surmise that mid-tier energy players are either resilient or disappointing compared to their larger peers.

Forest Oil (NYSE: FST), Encore Acquisition (NYSE: EAC) and Atlas Energy (NYSE: ATLS) are WCAT's top three holdings. These are names that don't figure prominently in the aformentioned ETFs, so if oil prices bounce WCAT should perform well.

Or should it? WCAT has done little to distinguish itself and is only averaging about 4,400 shares traded per day. On the other hand, it has less than 15 trading session under its belt.

While WCAT features a higher expense ratio than the equivalent large-cap energy ETF offerings, its holdings are especially sensitive to the success of new projects. Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) can afford a few gaffes when it comes to exploring where there are no proven reserves.

WCAT's holdings would likely be hammered on news like that. That also means successful new discoveries could really jolt WCAT and that makes the ETF worth watching. For the time being, wait to see what the inflows are to WCAT before starting a big position.