Jefferies has brought forth an ambitious Wildcatters Exploration & Production ETF that will likely provide investors with a unique niche opportunity to play the small cap energy sector in a diversified manner without having to pick stocks individually. The can, however, expect more volatility than holding a broader market or large cap energy ETF.
Name: Jefferies Wildcatters Exploration & Production
Performance: Newly Launched
Expense Ratio: 0.65%
Disclosure: No position at time of publication
What makes Wildcatters so exciting? For example, earlier this month, a small outfitter Energy XXI Bermuda (EXXI) announced a major find in the Davy Jones ultra-deep prospect and the stock jumped 50% in a single day! Now, the likelihood of a retail investor picking that one over other speculative wildcatters is no better than a monkey throwing darts at the board. However, with WCAT, retail investors have an opportunity to participate in such wild swings in individual Wildcatters.
The .65% expense ratio is reasonable, given no similarly themed ETF exists elsewhere and even buying the top 10 holdings would surely cost more even for sizable portfolios. WCAT holds 55 companies and is based on a Jefferies index of Wildcatters so it is passively managed. The ETF has opened with decent trading volume and has been down slightly given the recent market and commodity dip last week.
While this may not be a perfect method to hedge your own energy prices, I would anticipate that WCAT would have a higher Beta and hence, increase in levered fashion against an overall rise in oil or natural gas. Vice versa during a decline.
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