Hedge fund launches first ETF for Canadian heavy crude oil

[CALGARY] The first exchange-traded fund tracking the price of Canadian heavy crude launched on Tuesday, enabling investors to gain exposure to the country's physical crude market and potentially boosting liquidity.

The Canadian Crude Oil Index ETF, issued by Calgary-based hedge fund manager Auspice Capital Advisors Ltd, will be based on the price of Western Canada Select heavy blend crude.

Auspice President and Chief Investment Officer Tim Pickering said the new ETF could increase participation in the relatively illiquid Canadian crude market.

"In Alberta, we have got a market that is participated in almost exclusively by wholesale participants. What's missing is speculators and retail players, people that have different motivations," Mr Pickering said. "You need healthy markets to have liquidity for all different types of investors and, up until this point, I don't think that has been the case for Canadian crude oil." On the first day, some 11,000 shares traded on the Toronto Stock Exchange under the ticker CCX, Mr Pickering said.

The new ETF tracks the performance of Auspice's Canadian Crude Excess Return Index, which reflects the returns an investor would receive from holding WCS futures.

Mr Pickering said it will enable market players keen to bet on Canada's oil patch to do so without having to invest in the underlying producers.

WCS trades at a discount to the West Texas Intermediate benchmark. That differential hit the narrowest levels in years this week thanks to strong US refinery demand, supply outages in the oil sands and improved market access.

Mr Pickering said WCS tended to be volatile, but also offered investors a lot of potential gains. "It's already at a discount to other major crude grades and we argue very cheap versus other heavy sour grades like Maya, so its ability to pick up momentum to the upside is greater," he added.

REUTERS