Market Overview

Three ETFs With Interesting Reactions To BP

OK, the Macondo well is plugged and the world knows that BP (NYSE: BP) faces tens of billions of dollars in liabilities related to the Gulf of Mexico oil spill and will sell tens of billions of dollars in assets to pay for the tab.

Obviously, the shares of Europe's second-largest oil company have seen better days and while they may not be a screaming buy right now, the worst could very well be behind the downtrodden British oil giant.

At the time of the spill, there were four ETFs offering a fair amount of exposure to BP. The iShares MSCI U.K. Index Fund (NYSE: EWU), the iShares S&P Global Energy Sector Index Fund (NYSE: IXC), the SPDR S&P International Energy Sector ETF (NYSE: IPW) and the WisdomTree International Energy Sector Fund (NYSE: DKA).

On June 8 this was the exposure of those four ETFs to BP: 5.77% of IXC, 10.7% of IPW, 6.85% of DKA and 7.73% of EWU.

Let's take EWU out of the equation because that fund would probably have to hold BP, regardless of bad news. What have the other ETFs done with their BP exposure post-spill?

The answer is interesting.

IPW has trimmed its BP exposure, but only modestly to 5.46%, according to data on the iShares Web page.

IXC pared its BP weight by a little bit more to 10.06%, according to the SPDR Web page.

Now the really interesting move was made by DKA. BP was a top-10 holding for the ETF before the spill. Not only has BP been removed from DKA's top-10 holdings, take a look at DKA's roster of 60 stocks on the WisdomTree Web page and you won't find BP anywhere.

This is a curious move by WisdomTree and not knowing exactly when it happened, it's hard to say if it saved DKA investors any money.

If nothing else, the lesson here is that in the face of oil spills, product recalls and other events that would be clearly damaging to a company's stock, it would be wise for investors to keep an eye on high on how ETF issuers deal with their exposure to public companies that have become public enemies.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs Global Markets Movers

 

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