The 'Profitable Crude Oil ETF' Overshadowed by the Second Battery Boom

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Junho Hwang] Crude oil-related exchange-traded funds (ETFs), which struggled due to low oil prices amid economic recession concerns caused by COVID-19, have posted solid returns this year. They have outperformed secondary battery ETFs, which have gained attention due to increased interest in ESG (environment, social, governance) including climate change response throughout the year.

According to the Korea Exchange on the 23rd, the KBSTAR U.S. S&P Oil Producers ETF recorded a return of 48.30% from the beginning of the year until the 17th. Apart from crude oil futures leverage or inverse products listed on the domestic stock market, this is the only ETF product investing in oil companies. As COVID-19 vaccination rates increased and the economy recovered, oil demand rose, boosting the stock prices of related companies and driving the ETF’s returns to soar.

In particular, the oil ETF’s returns were higher than those of secondary battery ETFs, which have been fueled by the electric vehicle craze led by Tesla. From the beginning of the year to the present, the TIGER Secondary Battery Theme and KODEX Secondary Battery Industry ETFs recorded returns of 41.21% and 30.84%, respectively. The TIGER Global Lithium & Secondary Battery SOLACTIVE ETF, which invests in the global secondary battery industry, also posted a return of 10.99% from its listing on July 20 until the 17th.

The outlook is also bright. Cha Dong-ho, Director of ETF Management at KB Asset Management, said, "Demand for alternative energy including secondary batteries has not yet caught up with oil demand," adding, "As expectations for economic recovery emerge, the strength of oil prices will continue."

However, attention should be paid to oil price trends. Over the past year, West Texas Intermediate (WTI) crude oil prices have steadily risen from $35.79 per barrel on October 30 last year to $75.25 on July 13 this year. After falling to $62.14 on the 20th of last month, prices have climbed back to around $72. On the 22nd (local time), WTI rose 2.51% (closing at $72.23) as risk asset preference increased due to the Federal Open Market Committee (FOMC) setting the direction of U.S. monetary policy.

Director Cha forecasted, "WTI has risen nearly 50% since the beginning of the year, and although recent production disruptions caused by hurricanes have led to short-term increases, the rate of increase may gradually moderate."