Oil prices are heating up along with the rhetoric surrounding a potential U.S. military strike on Syria. Oil ETFs are an obvious way to position for higher energy prices, but single-country funds are another strategy and investors have many options.
“First, higher oil demand is a seasonal summer trend not only in developed nations but also in emerging economies. Second, the political unrest in the Middle East could boost uncertainty and increase the likelihood of a supply disruption. Third, encouraging labor and retail sales data, signaling a strong U.S. economy, have added to the bullishness,” Zacks Equity Research wrote.
Oil producers are enjoying the strength seen in oil prices over the second half of 2013. In turn, countries that are rich in oil or natural resources are benefiting from the uptrend in the commodity market. Analysts say that as long as oil remains above $100 per barrel, the single-country plays can be profitable.
Investors who want diversified exposure to the rise in oil prices without investing in futures or the actual commodity will find country-specific ETFs an easy investment choice. Oil revenues make up a large portion of after-tax income and also account for a good size portion of GDP in such countries.
A good example is the iShares MSCI Canada (NYSEArca: EWC) which allocates about one-fifth of the portfolio to energy. Canada is the world’s sixth largest crude oil producer. The uptick in oil prices stimulates all areas of the economy, such as production, investment, employment and eventually, consumer spending. [Canada ETF: Developed Market, Commodity Exposure]
Global X FTSE Columbia 20 ETF (NYSEArca: GXG) taps into the fourth largest oil producing nation in the world. Columbia is currently in a huge oil boom, as crude production has doubled since 2006. Critical reforms in the oil sector has created the ability for oil producers to gain. GXG allocates about 22% of the portfolio to the energy sector. [Four Country ETFs Bucking the Downtrend]
An interesting European play on the oil rally is the iShares MSCI UK Index Fund (NYSEArca: EWU). Oil is the main source of energy use in the country, filling about 38% of the United Kingdom’s needs. EWU allocates about 17% of the portfolio to energy, with BP Plc and Royal Dutch Shell in the top holdings. [Single Country ETFs That Offer Yield]
Tisha Guerrero contributed to this article.