BP Trial Puts Obscure Energy ETFs in Play

ETF Trends

It was over three years ago that BP’s (BP) Macondo well ruptured, setting the Deepwater Horizon rig ablaze while leading to tragic deaths and the largest oil spill in U.S. history. As is par for the course with cases of this magnitude, things have moved slowly with regards to federal legal proceedings against BP and recent courtroom action has Europe’s second-largest oil company by market value in focus.

BP in the spotlight also puts a small, obscure energy ETF in focus. The $12 million SPDR S&P International Energy Sector ETF (IPW) is the ETF with the largest allocation to BP at 10.41%. That makes the BP IPW’s largest individual holding, though two Royal Dutch Shell (RDS-A) securities combine for 17.4% of the fund’s weight. [What BP Spill Means for ETF Investors]

As legal proceedings have ramped up, BP’s ADRs have lost 1.7% in the past month. By comparison, Exxon Mobil (XOM), the largest U.S. oil company, is up 2% over the same time. BP is challenging the handling of a massive class action suit against it, but earlier this month, claims administrator Patrick Juneau offered another $400 million to claimants, bringing BP’s total paid to date to $4 billion, reports Harry Weber for Fuel Fix.

On Tuesday, the Associated Press reported BP asked a federal judge to halt all payments, saying the claims could be “tainted by fraud, corruption and malfeasance.”

All the legal wrangling keeps BP’s name in the press and not for the right reasons. Year-to-date, the stock is barely higher while Exxon is up 5.2%. BP’s lethargic performance has weighed on IPW, sending the ETF down 3% this year. [ETFs Stung by BP Spill]

IPW is not the only ETF that has been hurt by a large allocation to BP. The iShares MSCI ACWI ex U.S. Energy ETF (AXEN) is down 5.6% year-to-date. That fund features a weight of 8.7% to BP. Proving that weightings make all the difference with stock ETFs, the iShares Global Energy ETF (IXC) is up 2.1% this year. The $964 million IXC has a mere 4.8% weight to BP, but an almost 15% allocation to Exxon.

With BP’s lingering courtroom drama and Shell’s slack performance, investors may want to consider sticking with U.S.-focused energy ETFs. The Vanguard Energy ETF (VDE) is a good place to start as that ETF is up almost 12% this year.

SPDR S&P International Energy Sector ETF

View photo



ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (0)