Oil-industry pain hits sector ETFs

Firms announce decisions on energy-focused funds as volatility continues to roil crude oil futures market

Oil-industry pain hits sector ETFs

Continuing pain in the oil markets has forced two ETF issuers to make difficult decisions with respect to their energy-oriented funds.

Harvest Portfolios has announced plans to terminate the Harvest Global Resource Leaders ETF (HRES) from the TSX effective at the close of business on Tuesday, June 30. All units still held by investors as of the termination date will be subject to a mandatory redemption.

“Unitholders of the Harvest Global Resource Leaders ETF will be able to sell their units through the facilities of the stock exchange until the Delisting Date,” Harvest said, noting that all remaining unitholders as at the termination date will receive net proceeds from the fund’s liquidation, less all liabilities and expenses incurred with its dissolution, on a pro-rata basis.

Meanwhile, Horizons ETFs said that it is extending its suspension of new subscriptions for shares of the BetaPro Crude Oil 2x Daily Bull ETF1 (HOU) and the BetaPro Crude Oil -2x Daily Bear ETF2 (HOD), while continuing to accept redemptions in the normal course.

While Horizons expects units of HOU and HOD to continue trading “at a substantial premium to their net asset value,” it maintained its recommendation for investors to avoid purchasing shares of the ETFs for the meantime.

Noting last week’s unprecedented volatility in crude oil futures markets, the firm reminded investors of certain termination rights held by the derivative counterparties for HOU and HOD with respect to current forward agreements currently entered into with the ETFs.

While Horizons expects 100% of the assets of the ETFs to be invested in cash or cash equivalents upon settlement of the forward agreements held by HOU and HOD, it could offer no assurance that the ETFs will be able to replace forward agreements or add other derivative exposure to crude oil should the derivatives be terminated.

The risk of the ETFs being unable to obtain futures exposure would substantially increase, it added, if July or August futures contracts were to settle below US$10. Obtaining futures exposure would be impossible for the funds, Horizons estimated, should settlement prices once again fall below zero.

“Both HOU and HOD have been trading since April 21, 2020 at prices that are not reflective of their underlying net-asset-value,” the firm said, noting that the ETFs are no longer meeting their stated investment objectives as a result of changes to their operations.


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