Market Overview

New Unconventional Oil ETF Out Today


Van Eck, the fifth-largest U.S. ETF sponsor, is rolling out the Market Vectors Unconventional Oil & Gas ETF (NYSE: FRAK) today, marking the introduction of the first ETF devoted exclusively to companies engaged in tapping unconventional energy resources.

The 43-stock ETF will feature an expense ratio of 0.54%. FRAK's constituents engage in the production of oil and natural gas from coal-bed methane, coal seam gas, shale oil, shale gas, tight natural gas, tight oil and tight sands gas. The expense ratio is capped until at least May 1, 2013.

Not surprisingly, that leads to a heavy focus on North American companies as U.S. and Canadian firms comprise nearly all of the new ETF's country weight with Australia getting a tiny 0.3% allocation.

From 2000 to 2010, shale gas went from a minuscule amount to accounting for 23% of total U.S. natgas output and is projected to be the largest contributor of production growth, accounting for 46% of U.S. natgas production by 2035, according to Investor's Business Daily.

Despite FRAK's emphasis on unconventional energy exploration and production, the ETF is home to plenty of familiar names. Occidental Petroleum (NYSE: OXY), the fourth-largest U.S. oil company, is FRAK's largest holding at almost 8.5%.

Other top-10 holdings include Canadian Natural Resources (NYSE: CNQ), EOG Resources (NYSE: EOG), Devon Energy (NYSE: DVN), Hess (NYSE: HES), Noble Energy (NYSE: NBL), Williams Cos. (NYSE: WMB), Chesapeake (NYSE: CHK), Encana (NYSE: ECA) and Pioneer Natural Resources (NYSE: PXD).

"FRAK comes to the market as rising global consumption and the quest for energy independence is driving many nations to seek additional supply sources for oil and natural gas. Unconventional technologies—which include hydraulic fracturing, lateral or deep sea drilling, high pressure gas injection, and advanced 3D imaging—may have potential to transform the global energy landscape by dramatically increasing supply and altering import needs. During the past several years, new extraction techniques applied to traditional resources have led to significant, “game changing” increases in North America's natural gas supply capacity.

"More recently, these same techniques have been utilized by oil companies striving to produce similar results. Companies located outside North America, in countries such as China, Australia and Argentina, have also begun exploring the potential of unconventional energy. Technological advancements and cost efficiencies have attracted interest from major global energy companies that are eager to participate, as evidenced by rapidly increasing M&A activity," Van Eck said in a statement.

FRAK joins Van Eck's lineup of equities-based commodities ETFs that includes the Market Vectors Coal ETF (NYSE: KOL), Market Vectors Oil Services ETF (NYSE: OIH) and the Market Vectors Hard Assets Producers ETF (NYSE: HAP).

Posted-In: Long Ideas News Sector ETFs Short Ideas New ETFs Commodities Intraday Update Markets


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