With the rise of niche ETFs, there is seemingly an exchange-traded fund for everything.
That includes an ETF for Western Canadian Select, the heavy-oil benchmark that made headlines last week when it tumbled to less than US$14 a barrel. Not surprisingly, the Canadian Crude Index ETF (CCX-T) has plummeted in tandem.
Created in 2015 by Calgary-based Auspice Capital Advisors Ltd., CCX tracks an index that was “designed to provide returns that reflect the price of owning crude oil that is produced in Canada,” specifically WCS, according to company documents.
The ensuing years have been a struggle. At launch, WCS traded hands at around US$50 a barrel; now, WCS is about US$20, a reflection of continuing troubles in the oil patch. The ETF has plunged about 78 per cent since inception, as of Tuesday’s close.
Granted, the fund is not widely held, with total assets of around $9-million, nor widely traded, save for a recent increase in volume. But in an age of abundant ETF options for retail investors, the situation does highlight the inherent risks of niche funds with a narrow – or in this case, singular – focus.
The number of Canadian-listed ETFs has exploded in recent years. At the end of 2017, there were 667 structured products – mostly ETFs – listed on the Toronto Stock Exchange, nearly double the 338 listings at the end of 2008. Over the same span, the number of listings for operating companies declined to 834 from 1,232.
Those trends have spilled into 2018. Through the first 10 months of the year, 88 new ETFs have been listed on the TSX, compared with nine corporate IPOs, according to TMX Group. The new funds track everything from small-cap cannabis companies to firms involved in the development of blockchain technologies.
In due time, ETFs will outnumber company listings, if current trends continue.
“You could see as many investment vehicles as you will actual companies to invest in, which is going to be a ridiculous moment,” Bryce Tingle, the Murray Edwards chair of business law at the University of Calgary, told The Globe and Mail last year.