Avoid These Global Energy ETFs on BP Warnings - ETF News And Commentary


Europe's third largest oil company, BP plc ( BP ), reported second-quarter 2014 results before the opening bell on July 29. The company missed our earnings estimate and warned of potential losses in its Russian business in the wake of tough sanctions imposed by the Western powers.

This is especially true as BP owns a nearly 20% stake in Russian oil giant Rosneft. The threat of more sanctions by the U.S. or European Union against Russia could worsen BP's relationship with Rosneft and hamper its production, reserves and reputation. Notably, Russian sanctions so far had no impact on the company's business but new measures could dilute its profits in the upcoming quarters (read: Russian Sanctions and Malaysian Plane Crash Put These ETFs in Focus ).  

Additionally, the company expects third-quarter production to fall on seasonal maintenance and turnaround activity, mainly in the higher-margin Alaska and Gulf of Mexico regions.

The British oil giant reported earnings per ADS of $1.18 per share, which missed the Zacks Consensus Estimate of $1.20 but was well above the year-ago earnings of 86 cents. Revenues rose a marginal 0.13% to $95.83 billion.

3 ETFs to Avoid

Based on the company's cautious outlook, shares of BP dropped 3.3% on the day of the earnings announcement on elevated volume. This trend is likely to continue at least in the near term as the European Union and the U.S. have imposed further tough sanctions targeting the Russian oil industry, defense sector and state-owned banks, according to the l latest media reports (read: After Crimea, Where Do Russia ETFs Go Now? ).

As such, investors should avoid or write-off the ETFs having the largest allocation to this big oil giant. Some of the funds are detailed below:

SPDR S&P International Energy Sector ETF ( IPW )

This fund provides exposure to the energy companies of developed markets excluding the U.S. by tracking the S&P Developed Ex-U.S. BMI Energy Sector Index. It is less popular and illiquid with AUM of $22.7 million and average daily volume of around 7,000 shares. The ETF charges 50 bps in fees per year from investors (see: all the Energy ETFs here ).

In total, the fund holds about 131 securities in its basket. Of these firms, BP occupies the second position with 10.23% of total assets. About 91% of the portfolio is allocated to oil gas and consumable fuels, and the rest to equipment & services. In terms of country exposure, United Kingdom takes the largest share at 34.5% while Canada and France also get double-digit exposure at 29.6% and 11.7%, respectively. The product lost 0.91% in yesterday's session.

iShares MSCI Global Energy Producers ETF ( FILL )

This fund manages $8.5 million in its asset base and provides exposure to 228 global energy producer stocks by tracking the MSCI ACWI Select Energy Producers Investable Market Index. The product has an expense ratio of 0.39% and sees light volume of less than 4,000 shares.

Here, BP occupies the third position in the basket with 5.15%. North American firms dominate the fund's returns with half of the portfolio, followed by Canada (10.63%) and the Netherlands (8.63%). From a sector look, the product is skewed toward oil and gas integrated with 61% share and exploration and production with 33% share. The ETF was down 0.54% on the day (read: Is This One Energy ETF You Need to Sell? ).

iShares Global Energy ETF ( IXC )

This ETF follows the S&P Global 1200 Energy Sector Index, giving investors exposure to the global energy space. The fund is relatively popular and liquid with AUM of $1.5 billion and average daily volume of more than 177,000 shares. Expense ratio came in at 0.47%.

The product holds 94 stocks in its basket and BP takes the fifth top spot making up 4.74% of the assets. Oil gas and consumable fuels sector dominates the fund return with 86.8% share while U.S. firms make up for more than half of the portfolio. The fund lost 0.56% in yesterday's trading.

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BP PLC (BP): Free Stock Analysis Report

SPDR-SP I EGY (IPW): ETF Research Reports

ISHARS-M GL EGY (FILL): ETF Research Reports

ISHARS-GLB EGY (IXC): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: BP , IPW , FILL , IXC



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