Horizons ETFs Management Inc. has launched Horizons Canadian Midstream Oil & Gas Index ETF (HOG). It begins trading on the TSX today.
HOG seeks to replicate the performance of the Solactive Canadian Midstream Oil & Gas Index, net of expenses. The index provides exposure to equity securities of a group of Canadian oil and gas companies in the midstream sector — companies involved in the transportation and servicing of energy, such as pipelines.
“Exposure to the midstream sector presents them with a new opportunity for diversification and yield,” says Howard Atkinson, president of Horizons ETFs. “Midstream companies have historically had lower volatility and generated higher yields than stocks in the upstream (extraction) and downstream (refinement) sectors. In many ways, their return profile is similar to master limited partnerships (MLPs), which are popular income-focused energy sector investments in the U.S.”
Currently the Midstream Index holds 12 stocks, very few of which overlap with the securities held in the S&P/TSX Capped Energy Index.
“Producers generally have to pay the same price to transport crude or natural gas, regardless of the actual price they receive for the commodity,” says Atkinson. “It’s for this reason that the midstream sector has always been classified as an income play and continued to generate dividend yields in excess of 4% annually.”