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Tax Cut Sends Refiners ETF To Record Highs

ETF Professor

With oil prices and traditional energy stocks dithering for most of 2017, it may not be surprising that the VanEck Vectors Oil Refiners ETF (NYSE: CRAK) is the best-performing non-leveraged energy sector exchange traded fund this year.

Still, CRAK's 2017 gain of more than 48 percent is impressive, expected or not. The ETF, which debuted in August 2015, tracks the MVIS Global Oil Refiners Index. That index “is a rules-based, modified capitalization weighted index intended to give investors a means of tracking the overall performance of companies involved in crude oil refining which may include: gasoline, diesel, jet fuel, fuel oil, naphtha and other petrochemicals,” according to VanEck.

While sagging oil prices were one catalyst behind CRAK's year-to-date ascent, the ETF has become a new part of the “Trump Trade.”

A Lift From The Tax Bill 

Scores of other sectors and industries, including technology and financial services, are seen as benefiting from the tax cut signed by President Donald Trump, but refiners are part of that conversation as well. CRAK's recent performance confirms as much.

“Unlike oil explorers and equipment providers that have struggled to generate positive cash flow, refiners have enjoyed fat margins from producing fuels from crude. That’s put refiners in a much better position to benefit from a plunge in the corporate tax burden," Guy Baber, an analyst at Piper’s Simmons unit, said in an interview with Bloomberg

CRAK is up more than 6 percent over the past month, a jump that has brought the ETF's fourth-quarter gain to almost 16 percent. The ETF holds 26 stocks and is the only dedicated refiners ETF on the market today. CRAK hit an all-time high Tuesday.

Benefits Abound

The energy sector is one of the most capital-intensive groups in the U.S. With lower effective tax rates on the way, CRAK components could begin boosting capital spending.

“Refiners have already started evaluating capital projects to determine whether marginal ones have become profitable and whether any can be advanced into the five-year window," said two refining lobbyists based in Washington D.C., who asked not to be named because they were not authorized to speak for their respective companies, Reuters reported.

The top 10 holdings in CRAK include Phillips 66 (NYSE: PSX), Valero Energy Corp. (NYSE: VLO) and Marathon Petroleum Corp. (NYSE: MPC).

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