- Investment involves risks, the price of units or shares of the Funds may go up as well as down. Past performance is not indicative of future results. You may lose the principal invested.
- This is a futures-based exchange traded fund which is subject to risks associated with derivatives and is different from conventional exchange traded funds.
- Samsung S&P GSCI Crude Oil ER Futures ETF the( “Fund” ) may face following important risk factors, for example: investment risk, Oil market risks, Futures contracts risks, Risk of material non-correlation with spot/current market price of the WTI crude oil risk, Margin risk, Risks related to unscheduled roll of the Index, Distributions risk, Government intervention and restrictions risk, Passive investments risk, . Trading risks, Trading differences risk, Reliance on market maker risk, Tracking error risk, Termination risk, Past performance risk and New index risk
- The Manager may in its discretion make cash distributions to Unit holders out of capital or out of gross income resulting in an increase in distributable income for the payment of distributions which is in effect a payment of distributions out of capital.Payment of distributions out of capital or effectively out of capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment. Any distributions involving payment out of or effectively out of the Product’s capital may result in an immediate reduction of the Net Asset Value per Unit.
- The Fund is a complex product and only suitable for investors who can afford the financial impact involved in futures contract investment and investors should exercise caution in relation to this product.
- This document is for reference only and does not constitute an offer to recommend or solicit the purchase of any product. Investors should not make any investment decisions based on this document alone.
- The investment decision is made by you and you should not invest in the product unless the intermediary has explained to you that the product is suitable for your financial situation, investment experience and objectives when selling the product. Please note that the investment risks listed above are not exhaustive. Investors should read the Fund Prospectus and Fund Fact Sheet in detail before making any investment decision for details including product features and risk factors.
Factors driving the rise of oil prices
- Low inventory levels
- IEA stated that OECD industry stocks rose by 15.2 million barrel (mb) to 2 691 mb in May but still 301.3 mb below the 2017-2021 average.#
- Increased potential demand for crude oil
- The global economy has begun to recover and the demand for oil has gradually increased. The global demand for oil in 2022 is 100.29 million barrel per day (mb/d) and is expected to be 102.99 mb/d in 2023. The supply shortage is expected to continue in 2023.
- Geopolitical factors
- Oil prices may rise if there is geopolitical risk in major oil-producing countries which will raise market concerns about the availability of oil supply. The oil prices may fluctuate drastically at the same time.
# Source: International Energy Agency, data as of July 2022
The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 countries. The mission of OPEC is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry. The Member Countries include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela. The crude oil produced by OPEC accounted for 37.86% of global production and accounts for 80.40% of global reserve in 2021, while US and Russia are one of the major oil producers.
Source: OPEC, consolidated by Samsung Asset Management (HK) Limited, as of 31 Dec 2021
How will be the trend of oil price?
We have seen a notable downward trend of oil price in the past two weeks. In light of recent events on supply and demand side, SAMSUNG Asset Management (HK) Limited (“SAMHK”) views a profound impact on the tension supply-demand situation. Thus, we revise our target crude oil price to USD 85-105.
Following the oil price dropped below USD 100 on 12 July, we have heard market concerns primarily on the demand side. The aggressive rate hikes from FED and deepen energy crisis in Europe may drag the global economy into a great recession, and prevent the cruel oil demand recovery. Meanwhile, China seems on a bumpy road towards reopening, implying subdued oil demand in the near term.
We largely agree with above arguments. However, our focus would be more on the oil supply side, which has been the key factor to high cruel oil price in 2022 YTD.
Source: Samsung Asset Management (HK) Limited, as of 19 Jul 2022
Choosing Oil Futures ETF or Oil Stocks?
The stock prices of oil companies may not be able to directly reflect the oil prices. Apart from the change of oil prices, they are also affected by the company's financial performance, profitability, business development plan and so on. Comparing the correlation, the correlation of 3175.HK over 1 year has higher correlation with oil futures prices than that of "Three barrels of oil" (Sinopec 386.HK, PetroChina 857.HK and CNOOC 883.HK). The performance was outstanding and closer to the return of oil prices than “Three barrels of oil” over 1 year.
Correlation with crude oil prices
|Oil related investment||Code||Correlation with WTI crude oil future price||1 Year Performance|
|WTI crude oil future||CL1 Comdty||1.000||33.36%|
|Samsung S&P GSCI Crude Oil ER Futures ETF||3175 HK||0.987||55.09%|
|China Petroleum & Chemical Corporation||386 HK||0.262||3.93%|
|PetroChina Company Limited||857 HK||0.286||12.65%|
|CNOOC Limited||883 HK||0.195||29.87%|
Source: Bloomberg, data from 30 July 2021 to 29 July 2022
* Source: Bloomberg, as of 29 July 2022. Past performance is not indicative of future performance
Why choosing Samsung S&P GSCI Crude Oil ER Futures ETF?
- ETF directly invests in multiple crude oil futures months and has a relatively higher correlation with oil prices
- Futures ETFs capture oil prices trend better than oil stocks do
- ETF is monthly rebalancing and investors do not need to rollover themselves. This reduces the inconvenience for investors brought by investing future contracts.
- The global economy has begun to recover and the demand for oil is gradually increasing. The oil supply shortage is expected to continue which may lead oil prices to rise.
- As of 29 July 2022, it is currently in an environment of backwardation, investors holding long futures positions may have " positive roll yield ".
Details of commodity﹕ https://www.samsungetfhk.com/education/commodity/
Risk of investing in Oil ETF
- Geopolitical factors
- Such as wars, political changes, natural disasters, etc. Geopolitical factors may affect the supply of oil-producing countries and may increase or decrease the demand for oil in the relevant regions, which will increase the volatility of oil prices
- Supply and demand
- OPEC has been restricting the oil supply. Oil prices may fall if OPEC relaxes restrictions and allows massive production of oil
- Unexpected factors may affect oil demand. For instance, global economic activity was suspended during the COVID-19 pandemic. The demand for oil dropped sharply, resulting in oil glut and a sharp drop in oil prices in 2020
- Global economy
- Oil prices are linked to economic activities. For example, after the financial tsunami broke out in 2008, oil prices fell from high levels
- Single commodity investment
- Oil ETFs mainly invest in a single asset class. Compared with traditional equity or bond ETFs, oil ETFs have lower diversification capabilities, resulting in higher volatility than general ETFs
Geopolitical factors, new OPEC output guidelines or various global events can cause oil prices to suddenly surge or collapse, also affecting the price of oil-related investment products. Investors should pay attention to the volatility risk of oil prices and remain alert to the trend of oil prices.