First Trust Plans Oil Refiners ETF

June 16, 2011


First Trust, the money management firm known in part for its successful natural gas drillers’ ETF, filed paperwork with the Securities and Exchange Commission to market an exchange-traded fund focused on oil refining companies around the world.

The First Trust ISE Global Oil Refiners Index Fund will be based on the ISE Global Oil Refiners Index, which is designed to track public companies that are active in the oil refining and marketing industry, according to the filing. The prospectus didn’t elaborate.

The index will use a modified market-capitalization weighting methodology, and the fund will normally invest at least 90 percent of its assets in the common stocks and depositary receipts included in the index.

While oil prices have been rallying for the better part of a decade, oil refining is widely considered to be a difficult business in which to maintain consistent profitability. If refiners can’t pass on increases in crude prices to marketers, then so-called crack spreads diminish, dampening profitability. However, there are periods when crack spreads blow out, which is a boom to refiners’ profitability.

In a similar vein, if marketers can’t pass price increases from refiners on to motorists, marketing profit margins are squeezed. The proliferation of convenience stores attached to gasoline stations in the U.S. over the past generation is widely viewed within the oil industry as an attempt by marketers to integrate more consistent profit margins into an otherwise volatile profitability equation.

The filing didn’t disclose either the fund’s ticker or its proposed annual expense ratio.


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