Auspice Capital Advisors Ltd. is creating Canada's first exchange-traded fund based on heavy crude produced in Alberta to supply U.S. refineries.
The Calgary-based hedge fund is targeting a debut for the Canadian Crude Oil Index ETF in mid-April after filing a preliminary prospectus with regulators, said Tim Pickering, chief investment officer and founder of the firm. The ETF will be linked to prices for Western Canadian Select, a mix of crude from the oil sands and conventional wells that's blended and shipped from Alberta's Hardisty hub.
"We're creating a product that gives investors a way to participate in the physical Canadian crude oil market," Mr. Pickering said in an interview from Calgary. "Canadian crude doesn't get its due on the world stage because it's an esoteric, poorly visible commodity."
Most investors in Canada, the largest crude supplier to the U.S., already have exposure to Western Canadian Select through energy company holdings, Mr. Pickering said. The ETF allows investors to strip away some of the risks associated with holding equities, such as operational risks.
The ETF, using the ticker CCX, will be tied to Western Canadian Select through the performance of the Canadian Crude Excess Return Index, also created by Auspice, according to a company filing. The index mirrors returns investors would receive if they held Western Canadian Select futures.
The distance from Gulf of Mexico refineries means the Canadian crude blend trades at a discount to West Texas Intermediate, the U.S. benchmark.
That spread has averaged $14.28 a barrel over the past three months, data compiled by Bloomberg show. The discount widened to $14.15 a barrel Friday from $12 on Feb. 2, the narrowest since June 2013.
WTI, which has fallen by more than half since June as U.S. output and inventories surge, dropped 4 per cent to $45.16 a barrel at 1:40 p.m. in New York.
"It can be a billion-dollar ETF," Pickering said. "Everybody's got an opinion on energy. If you're sitting in Calgary, it's hard not to be into that, so we see a lot of interest building in Canadian crude."