Dallas, Texas-based Cushing Asset Management launched its first four ETFs offering exposure to the energy sector late last year, and has enjoyed oil’s rebound through the beginning of 2019.
The Cushing Energy and MLP ETF (XLEY) is up 20.08 per cent year to date, while the fund’s index, the Cushing Energy Index (CENI) is up 19.92 per cent against the S&P Energy Index at 16.32 per cent.
The Cushing Indices have exposure to master limited partnerships (MLPs) and this is limited within the ETFs to 24 per cent, allowing for income generation within US tax rules.
Todd Sunderland, Partner and Head of Quant Strategies at Cushing Asset Management says: “Oil, like a lot of risk assets, after the fourth quarter and horrendous December saw a pretty substantial bounce back with the WTI and Brent achieving their best performance since 2009.”
The fourth quarter performance came, at least in part, from an expectation that the US would bring sanctions on Iran, causing Saudi Arabia and other OPEC members to bring a lot of oil to market, some 1.5 to two million barrels a day. When the waivers were signed unexpectedly, Brent crude price fell substantially from around USD85 a barrel at the beginning of October to its bottom around USD50 in December.
OPEC members then reunited with Russia to pull back on production and that set off a rebound, with the Brent price reaching around USD69.
“The percentage change in the price of oil over the first quarter was substantial,” Sunderland says. “Long story short, it’s been beneficial for the energy markets and our XLEY ETF has had a good quarter.”
The Cushing Sector Plus ETFs include the Cushing Energy & MLP ETF (XLEY) which seeks to replicate the performance of the Cushing Energy Index by tracking the performance of large cap energy companies selected from the S&P 500 Energy Index and master limited partnerships (MLPs) selected from the Cushing 30 MLP Index. The remaining ETFs in the suite are the Cushing Energy Supply Chain & MLP ETF (XLSY); the Cushing Transportation & MLP ETF (XLTY) and the Cushing Utility & MLP ETF (XLUY).
All the ETFs are designed to produce yield.
“We are trying to get the word out so that people know they exist as a tool for their investment portfolios,” Sunderland says.
The ETFs are aimed at investors who want to have energy and energy related exposures in their portfolios combined with yield. “We think folks that are yield or income seeking will like the income piece of around 5 per cent on these ETFs,” Sunderland says.
The suite offers exposure to energy at multiple areas, upstream, midstream downstream while also offering transportation and utilities. “That’s something that may appeal to an investor depending on where they think the markets are heading,” Sunderland says.