ETF Showdown: Getting Dirty In The Oil Sands (ENY, FRAK, OXY)

Quiet as it may be kept, the number of U.S.-listed exchange traded funds offering exposure to Canada is proliferating at a decent pace these days. Part of the increasing number of ETFs with northern exposure comes from soaring production of unconventional energy resources, such as the oil sands of Western Canada. Depending on the estimate, that region is believed to be home to the second- or third-largest oil reserves in the world. The need for oil and gas producers to tap unconventional sources such as shale and oil sands property has been felt in the ETF world, too. There are now two ETFs that are direct plays on the shale and oil sands themes. One fund has been around for a while and the debuted earlier this week. In other words, it's ETF Showdown time with the Guggenheim Canadian Energy Income ETF ENY, the old fund, and the Market Vectors Unconventional Oil & Gas ETF FRAK, the new ETF. While FRAK is a new ETF, the differences between the two funds make for a compelling showdown. The Guggenheim Canadian Energy Income ETF debuted in 2007. Today, the ETF is home to an expense ratio of 0.65% and almost $114 million in assets under management. ENY features 34 stocks, all of which are courtesy of Canada-based companies. On the other hand, FRAK is home to 44 stocks and an expense ratio of 0.54%. Just over 71% of FRAK's country weight lies in the U.S. with 28.5% devoted to Canada. A minute of 0.3% is given to Australia. Another key difference between these two funds is index methodology. FRAK is a passively managed fund and for the part, ENY is, too. However, investors should note the following about ENY from the Guggenheim Web site: "Index selection methodology is designed to combine the highest yielding Canadian energy related securities with the most highly focused and fastest growing oil sands producers using a tactical asset allocation model based on the trend in crude oil prices." In plain English, when oil prices are high, ENY will be 70% allocated to oil sands stocks and 30% to high yielding Canadian energy stocks. When oil prices are considered to be in bear mode, the allocation flips to 70% high yielding energy names and 30% oil stands equities. FRAK doesn't do that and nor is the new ETF a pure play on the Canadian oil sands. Earlier this year we evaluated some of the top shale ETFs but that was before FRAK came to market. If FRAK gains traction with investors, it can lay claim to being THE shale ETF. Just look at the fund's top-10 holdings. Occidental Petroleum OXY and Devon Energy DVN combine for over 15% of FRAK's weight. Those two companies engage in no, zero, zilch offshore exploration. Other top-10 holdings include EOG Resources EOG, Hess HES and Chesapeake Energy CHK, all of which are companies with heavy shale exposure. Not to mention Chesapeake and to a lesser extent EOG are credible takeover targets. At the end of the day, ENY is a nifty ETF in its own right. It's ability to shift with the tides of oil prices should not be overlooked and it has a track record, something that cannot be said of FRAK. However, new doesn't mean bad. The combination of lower fees and Occidental/Devon exposure makes FRAK the winner of this week's ETF Showdown.