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Behind the Changes in Strategy in Pickens ETF

Sanghamitra Saha

The investment world knows T. Boone Pickens of course. The oil tycoon surrendered his energy-focused hedge fund in January 2018 after its “roller coaster ride” for 22 long years. The fading glory of oil trading was the reason behind this decision.

An oil ETF was also launched in early 2018 in the name of Pickens. The fund — NYSE Pickens Oil Response ETF BOON — intended to track an index by the same name and focus on companies whose performance positively correlates with that of ICE Brent Crude Oil Futures.

Traditional upstream energy producers (supply-side) as well as energy consumers (demand-side) were the primary focus of the index. On the supply side were the Exploration & Production, Oil Services, Refiners, and Renewables industries while the demand-side industries are Aerospace & Defense, Chemicals, Homebuilding, Metal Fabrication, Transportation, and Water.

Name & Objective Change

However, the fund now trades as the Pickens Morningstar Renewable Energy Response ETF RENW and tracks the Morningstar North America Renewable Energy Index rather than the NYSE Pickens Oil Response Index, per etf.com.

Why the Change?

Despite hitting the market in February 2018, the fund has amassed only about $2.9 million in assets. To generate more assets, the fund also underwent an expense ratio cut from 0.85% to 0.65%.

The underlying new index is a “rules-based, modified equal-weighted, liquidity-adjusted index of U.S. and Canadian-listed common stocks of companies in North America that are leaders in the transition to a low-carbon economy. Index constituents either derive significant revenue directly from renewable energy or green transportation products or services, or they meet a significant portion of their energy needs from renewable energy sources, such as the sun, wind, and water.” The index makes up about 97% of North America equity market capitalization, including large-, mid-, and small-capitalization companies.

This is quite a different stance as BOON used to include “stocks that had high correlations to the price of Brent crude oil.”

How Does It Fit in a Portfolio?

Green investing in in vogue. Clean energy jobs are thriving in the United States. Overall, clean energy jobs expanded 3.6% in 2018, with wind employment flourishing. San Francisco municipal utility plans to focus on 100% renewable energy, which would necessitate more construction of solar and wind facilities.

There is news that some states, including California, are using solar subsidies to boost solar power adoption. California, in fact, mandated all new homes to be constructed from 2020 to have solar power. So it makes sense for the issuer to target the renewable segment (read: Forget Trump Budget, 5 Green ETFs Crushing the Market).

Competition

There are lot of clean energy ETFs available in the market. Invesco Solar ETF TAN (which charges 70 bps in fees) has amassed about $443.1 million in assets. Apart from this, iShares Global Clean Energy ETF ICLN (which charges 46 bps in fees) is another product in the space that has gathered sizable assets ($305.2 million). The newly transformed fund RENW has to compete with these long-standing products in the space. RENW charges competitively and its expense ratio falls in between that of the two popular funds (read: 5 Market-Beating Sector ETFs of Q2).

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Invesco Solar ETF (TAN): ETF Research Reports
 
iShares Global Clean Energy ETF (ICLN): ETF Research Reports
 
NYSE Pickens Oil Response ETF (RENW): ETF Research Reports
 
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