Market Overview

A New Down For This Energy ETF

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A New Down For This Energy ETF

In what can be seen as a commentary on the shifting landscape of energy consumption, the NYSE Pickens Oil Response ETF (NYSE: BOON), an exchange traded fund affiliated with legendary oil investor T. Boone Pickens, is slated to become a renewable energy fund.

What Happened

BOON debuted in February of 2018 as an equity-based oil ETF designed to be more responsive to Brent crude price movements. The fund tracks the NYSE Pickens Oil Response Index, a benchmark not entirely dedicated to the energy sector.

“With a well-conceived methodology, the Index offers a significant advance in the practice of tracking an energy market investment. It aims to mitigate the downside of inevitable commodity cycles, while preserving the upside potential associated with investment in traditional energy equities,” according to TriLine.

Why It's Important

BOON is on borrowed time and will soon become a renewable energy ETF with the ticker “RENW.” The announcement of that shift comes as the the Energy Select Sector SPDR (NYSE: XLE), the largest equity-based energy ETF, is up 11.5% year to date while the Invesco Solar ETF (NYSE: TAN) is higher by more than 57%. News of BOON becoming RENW also comes against the backdrop of the energy sector's diminishing weight in the S&P 500.

“Despite oil prices more than doubling since the trough of early 2016, energy’s weight in the S&P 500 Index has actually slipped further, from more than 6% then to an all-time low of about 4.8% today,” according to Bloomberg.

Soaring domestic production has not lifted traditional energy ETFs. The U.S. is pumping oil at record highs, but alternative energy stocks and funds have been eating the fossil fuel industry's lunch. Over the past three years, a period in which U.S. oil output steadily climbed, TAN is beating XLE by a margin of better than 12-to-1.

What's Next

For BOON, what's next is the move to RENW. For the traditional energy patch, those companies likely need to start showing some cash flow to get investors excited because with production costs falling and adoption rising, alternative energy is the energy place to be at the moment.

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