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Crude oil prices – stuck in a relatively tight range in the first half of the year – have bounced back sharply to the triple-digit mark in the second half. The price surge was backed by seasonality and some other key factors.
First, higher oil demand is a seasonal summer trend not only in developed nations but also in emerging economies. Second, the political unrest in the Middle East could boost uncertainty and increase the likelihood of a supply disruption. Third, encouraging labor and retail sales data, signaling a strong U.S. economy, have added to the bullishness (read: Venezuela: The Next Black Swan for Oil ETFs?).
Further, the price rise was fueled by the latest data from the U.S. Energy Information Administration, while many foreign nations are also rebounding. China has seen solid data as of late, while European nations are also seeing decent GDP figures too.
The strength is not limited to the commodity world as a number of oil producers are also moving higher. These firms are expected to outperform as long as the commodity surges.
Key oil producing countries are also benefiting from this uptrend, as the commodity is an important driver of their overall economies. After all, oil revenues make up a big chunk of either tax revenues or GDP growth opportunities (and sometimes both) in big oil producing countries.
We have seen this phenomenon take place in a number of countries over the past few years, and with the advent of ETFs, these nations are easier to play than ever. In light of this, we have highlighted three country ETFs that could enjoy smooth trading in the months ahead should oil price rise or remain above $100 per barrel.
This trio of nations could be an interesting pick for investors who believe that oil will continue to move upward, and finally lead the commodity world higher (read: Crude Oil ETF Investing 101):
iShares MSCI Canada ETF (EWC)
Canada has been a commodity-rich nation as it is the world’s sixth largest producer of crude oil and a net exporter of the commodity. Higher oil price stimulates production, investment, consumer spending and employment in the country and thus aids economic growth.
The best way to invest in Canada is the iShares MSCI Canada ETF, a product that has nearly $3.6 billion in assets. The fund tracks the MSCI Canada Index, holding just under 100 stocks in its basket.
Although financials take the top spot at 36.63%, energy makes up a huge chunk of assets accounting for over one-fifths of the total. In terms of holdings, Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia occupy the top three positions with a combined share of 19% (see more in the Zacks ETF Center).
Global X FTSE Colombia 20 ETF (GXG)
Colombia might not be a prominent name among the global oil producers, but it is actually the fourth largest oil producer in Latin America after Venezuela, Mexico and Brazil. The country is enjoying a huge oil boom, primarily due to critical reforms in its oil sector. Crude production has almost doubled since 2006.
The most popular way to play the country is with GXG, an ETF from Global X. The product tracks the FTSE Colombia 20 Index, holding 24 Colombian companies. The ETF has so far managed assets worth $148.6 million while charging investors 68 basis points a year in fees (read: Time to Buy This Top Ranked ETF?).
The ETF is heavily concentrated in energy stocks, as these make up nearly 22% of the portfolio. In fact, Colombian oil giant Ecopetrol accounts for 14% of assets alone, suggesting pretty heavy concentration.
iShares MSCI UK Index Fund (EWU)
The United Kingdom is the largest producer of oil in the European Union with over 3 billion barrels of proven crude oil reserves. Oil remains the primary driver of energy consumption in the country, accounting for 38% of the total.
The most popular way to target the British economy is with iShares EWU. The fund tracks the MSCI United Kingdom Index and holds 108 stocks in its basket. The product is rich as it has accumulated over $2.3 billion in AUM while charges 50 bps in fees and expenses (read: Are UK ETFs in Serious Trouble?).
Financials actually take the top spot in the ETF, making up about 22% of the holdings, although energy accounts for 17% as well. The two oil giants – BP Plc and Royal Dutch Shell – take the third and fourth positions, respectively, in the basket.
Commodity-dependent countries could be worthwhile when natural resource prices are rising. This is especially true when the dollar is showing some weakness and investors are again gaining confidence in the broad commodity world.
Rising oil prices would improve the economic health of the oil-dependent nations and in turn ensure profits for investors picking these three products. All the three products currently carry a Zacks ETF Rank of 3 or ‘Hold’ rating, but if oil continues to move higher we could see some outperformance for these economies in the near future.
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