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Summary The Market Vectors Oil Refiners ETF launched this week is a compelling play in the energy sector. I conduct a review of the ETF itself and the opportunities & risks associated with the ETF. I believe CRAK is worth considering because of its strong performance in comparison to other energy segments. In this article, I will be reviewing the new Market Vectors Oil Refiners ETF (Pending: CRAK ), which launched yesterday. I believe investors should consider adding some CRAK to their portfolio because the refiners have been the lone bright spot over the last year when oil prices have collapsed. The following chart from the CRAK fund profile page shows that refining and marketing stocks are the only sub-segment of the energy sector (NYSEARCA: XLE ), which has posted a positive return over the last year. Crack Spread One of the most important things to consider when looking at refining stocks is to look at the crack spread. The crack spread is the difference between the cost purchasing the crude oil and the price of the products that the crude oil is refined or “cracked” into. I created the following chart using the ThinkorSwim platform that has the crack spread plotted over the last two years, as well as the performance of Valero (NYSE: VLO ), which is one of the largest holdings in CRAK. The chart shows that over the last two years Valero’s performance [Blue Line] has been highly correlated to the crack spread. (click to enlarge) [Chart from ThinkorSwim Platform] Opportunity The opportunity for refining stocks is promising because crack spreads are higher than a year ago, which will show up in the form of year/year earnings growth. In a troubled energy environment where oil companies/drillers etc cannot earnings, the refiners stand out above other energy segments. Using Valero as an example, you can see in the chart below for the last four quarters, EPS has been trending upward, even as oil prices had fallen to near $40, went back to $60 and are now back at $40. As long as the crack spread remains somewhat stable at these elevated levels, the refiners will continue to outperform the rest of the energy sector. (click to enlarge) Risks The primary risk of CRAK is that it is highly concentrated within its top 10 holdings. The top 10 holdings account for nearly 65% of the portfolio, therefore when considering CRAK investors should be comfortable with this fact and the underlying companies that are in the top 10 holdings. Second, another item to watch for is currency risk. As the following chart from the portfolio analytics section of the CRAK fund page shows, CRAK has a large international currency exposure. With nearly 50% of CRAK priced in foreign currencies investors who are also, bullish on the dollar could potentially pair a purchase of CRAK with the small-hedged position in the PowerShares DB USD Bull ETF (NYSEARCA: UUP ) or the WisdomTree Bloomberg U.S. Dollar Bullish ETF (NYSEARCA: USDU ) to mitigate the foreign currency risk. Closing Thoughts In closing, because CRAK just launched this week and I believe it should be added to investors watch lists for a period to make sure there is interest in the product. If there is adequate volume and CRAK attracts assets the refiners are a compelling choice when considering investing in energy because they have performed very well during this tough energy environment in comparison to other energy sector segments. Disclaimer: See here . Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague Scalper1 News
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