TriLine Index Solutions has launched its first ETF, BOON, the NYSE Pickens Oil Response ETF, which aims to redefine energy investing by offering a more modern and enhanced way to obtain exposure to energy.
Toby Loftin, managing principal of TriLine who led to the formation of BOON, explains that the firm has managed two mutual funds in the energy sector for the last five years, with some USD300 million under management.
The ETF’s ticker BOON is based on the research rooted in the vision of veteran energy investor T. Boone Pickens and his Pickens Plan. The ETF is based on the NYSE’s Pickens Oil Response Index, which is owned and administered by ICE Data Indices, LLC.
Loftin says: “This ETF is aimed at folks that are looking for balanced exposure to ‘energy’ smartly spread across the broader energy value chain.”
Their existing mutual fund, the BP Capital TwinLine Energy fund, was launched because the firm saw a gap in the marketplace with most energy funds married to the up-stream segment of the energy value chain, focusing on exploration and production and oilfield services companies. It has enjoyed top position in Morningstar’s energy equities league table for a number of years.
“We knew that things were changing dramatically because of horizontal drilling and shale production making resources more abundant in the US. If prices are going to be lower, then the end user is the one that benefits so include them as part of your investable universe,” says Loftin.
Loftin had previously worked with Boone and understood that the Pickens Plan capitalised on this approach, particularly on the abundance of natural gas in North America.
“His vision was ‘hey America, get on your own resources. Stop using OPEC oil,” Loftin says.
The TwinLine energy fund’s name is a play on words referring to ‘twinning’, a term used to describe laying a pipe alongside an existing pipe for oil transportation.
The methodology behind the benchmark index that underlies the fund and the new ETF is comprised of equities highly correlated to energy, based upon the price of the global benchmark for oil, ICE Brent Crude.
The Index includes not only traditional energy companies, but also firms that are ‘energy-intensive’ end users of energy who have the potential to benefit from the abundance of US supply as well as growing global demand for energy.
The inclusion of end users is intended to lessen the effect of the ‘boom and bust’ nature of commodity cycles and attempts to mitigate downsize capture while preserving upside capture.
The Index is equally-weighted and reconstitutes annually while rebalancing quarterly.
As the team considered the building blocks of the methodology: “The first thing we said to ourselves was that we have to include the end user of energy who is benefiting from lower prices,” Loftin says. They achieved this through viewing the equity market—in this case, the largest stocks on the NYSE—through the lens of energy (relationship to oil prices) and not through the traditional classification systems.
The method was further refined and a qualitative screen incorporated.
“If you run a 20 year back test, the way that the index changes each year shows that it maintains the upside capture associated with energy moves but minimises the downside associated with the bust side of the cycle.”
Loftin, with his military background, describes promotion of BOON as a three- pronged attack: special ops guys include ETF incubation specialist Mike Venuto at Toroso; ground campaign is dedicated sales staff targeting advisers and the ‘air campaign’, the third part, is the social media and digital marketing approach.
“Some folks are questioning do I want exposure to energy at all, but it’s like the circulatory system of the body - you have to pay attention to it and we are redefining the way you approach the sector,” Loftin says.
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