Zacks Investment Ideas feature highlights: Market Vectors Unconventional Oil & Gas ETF, Sustainable North American Oil Sands ETF

Zacks Investment Ideas feature highlights: Market Vectors Unconventional Oil &
  Gas ETF, Sustainable North American Oil Sands ETF and Guggenheim Canadian
                              Energy Income ETF

PR Newswire

CHICAGO, July 6, 2012

CHICAGO, July 6, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature
highlights Features: Market Vectors Unconventional Oil & Gas ETF (AMEX:FRAK),
Sustainable North American Oil Sands ETF (AMEX:SNDS) and Guggenheim Canadian
Energy Income ETF (AMEX:ENY).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

3 ETFs for the Unconventional Oil Revolution

While economic weakness and a strong dollar have kept oil prices depressed for
the time being, many are still long-term bulls on the vital commodity. The
world population grows at a rate of roughly 1% per year while surging economic
growth in the BRIC bloc-- as well as other emerging nations-- looks to keep
pressure on oil prices well into the future.

Beyond this, many of the world's key oil fields are reaching or have gone past
their peak production levels, suggesting that many of the top spots for the
commodity will see declining rates of output in the near future. This trend
has already begun to take place in Saudi Arabia's massive Ghawar Field,
Mexico's Cantarell Field, and Alaska's Prudhoe Bay, forcing many major oil
companies to look elsewhere for large amounts of recoverable supplies (see Two
Energy ETFs Holding Their Ground).

While the situation may seem dire in many of these important oil markets,
North American oil production is actually on the rise as of late thanks to new
technologies in the space. According to representatives from the DOE, domestic
production is up 15% year-over-year pushing the total output to the highest
level in more than a decade.

This has largely been the result of greater use of fracking technologies and
better processes to unlock oil from oil sands and shale. North America has
massive quantities of both of these types of oil and with prices significantly
elevated from a decade ago and new technology hitting the market, these once
irrecoverable oil deposits are now capable of hitting the market (see 11 Great
Dividend ETFs).

In fact, between shale and sands, total reserves could approach the equivalent
of several trillion barrels of oil, enough to completely alter the landscape
in terms of hydrocarbon production. Conoco Phillips' CEO said as much during a
recent OPEC conference, stating that North America could become self
sufficient in oil by 2025.

Obviously if we can ever see this happen or even oil production reach anywhere
close to this figure, a greater focus on unconventional oil sources will have
to be taken. Investment in the space will need to increase and technology will
also have to improve from its current levels, but even the fact that such a
prominent CEO can put this in the realm of possibilities is certainly
promising.

While playing the beginning stages of this trend is certainly possible via any
number of individual stocks, this approach could produce high levels of
volatility and miss out on some of the big winners as well. Instead, many
investors may be better served by taking an ETF approach in the market
instead, in order to get wide exposure to the space across a number of
different firms (see Three ETFs for The Energy Efficiency Boom).

Luckily for investors, the ETF market has been growing by leaps and bounds
over the past few years and a number of products exist that hone in on the
space. In particular, we believe that the following three ETFs could be big
winners from the coming energy revolution in the North American market:

Market Vectors Unconventional Oil & Gas ETF (AMEX:FRAK)

FRAK tracks the Market Vectors Unconventional Oil & Gas Index, which is a
rules based benchmark designed to track the overall performance of the
unconventional oil market. The firm has this include firms that are engaged in
any of the following businesses; coalbed methane, coal seam gas, shale oil,
shale gas, tight natural gas, tight oil and tight sands.

This produces a fund that holds about 45 companies in its basket while the
vast majority is in exploration and production companies. This sector accounts
for nearly 80% of the total, leaving just a fraction for integrated oil
companies, pipelines, and the coal sector (read Play An Oil Bull with These
Three Emerging Market ETFs).

Top individual names in this market cap weighted fund include Anadarko,
Occidential, and Canadian Natural Resources. Overall, the entire portfolio is
in North American firms with a 73/27 split that favors the U.S. over Canada.

Volume is somewhat light in this fund that just debuted in February but the
product has already accumulated a decent amount of assets in the short time
frame. However, the fees are a few basis points higher than others in the
category at 54bps and dividends could be lighter thanks to a heavy focus on
the exploration and production segment.

Sustainable North American Oil Sands ETF (AMEX:SNDS)

This relatively new product looks to track the most liquid U.S. and Canadian
firms that are investing in Canada's oil sands market. This includes companies
that are engaged in any of the following aspects of the market; oil
exploration, production, refinement, marketing, storage, transportation and
services.

Currently, the ETF holds 32 securities in its basket and it has a heavy focus
on integrated oil and exploration/production firms. Beyond these securities,
pipeline & distribution stocks, as well as engineering, trading, and
equipment, round out the rest of the product.

Investors should also note that the fund is almost entirely focused on large
cap blend stocks with some giant caps making their way into the product such
as ConocoPhillips, and Chevron. However, a number of more targeted small caps
also find their way into the product including Nexen and Oil States
International.

In terms of volume, SNDS still trades at a light level, suggesting that bid
ask spreads may be quite wide. However, expenses are reasonable at 50 basis
points a year and the yield is likely to be pretty solid thanks to the
inclusion of a number of large cap oil stocks and big dividend paying pipeline
securities (also read Inside The Forgotten Energy ETFs).

Guggenheim Canadian Energy Income ETF (AMEX:ENY)

This ETF takes a slightly different approach to the sector, offering up a mix
between royalty trusts and oil sands producers by tracking the Sustainable
Canadian Energy Income Index. This looks to combine the highest yielding
Canadian energy securities with the most highly focused oil sands producers
with exposure based on crude oil prices.

When crude oil is determined to be in a bull market, the product has a 70%
weighting to oil sands and puts just 30% in the royalty trust space.
Meanwhile, when oil is in a bear phase-- when the current quarter's price is
below the four quarter moving average price-- the focus shifts towards high
yielding securities in a 70%/30% split.

At time of writing, the fund is skewed towards exploration and production
companies as these account for nearly 60% of assets while integrated firms
make up another 26%. Top individual weightings go to Imperial Oil, Suncor
Energy, and Canadian Oil Sands, all of which make up about 7% of total assets
each.

It should also be noted that pretty much the entire fund is denominated in
Canadian dollars so there is some foreign currency risk as well. However, this
could make it more of a pure play on the Canadian oil boom, something to
consider if investors are looking for a broad play on the North American oil
market or just a bet on the Alberta oil sands and related areas.

Thanks to the more involved rebalancing strategy, this product is the most
expensive on the list, coming in at 70 basis points a year in fees. However,
it is also the most popular with $91 million in AUM and solid volumes that can
help keep the bid ask ratio at a decent level.

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