Gimmicky ETF Is Worth the Energy

Companies that sell exchange traded funds have been rightly accused of creating some gimmicky funds. State-based ETFs seem to be the latest, now that the Oklahoma Exchange Traded Fund(OOK Quote) is trading.

Upon further review, the Oklahoma fund, sold by OOK Advisors LLC, isn't all that gimmicky. It appears to offer genuine differentiation. Some may criticize the ETF for its extreme weighting in energy -- 72% is invested in high-yielding pipeline owners, drillers and refiners, making it a domestic energy fund. It allocates another 13% toward utilities. But unlike other energy funds, the Oklahoma ETF is big on smaller companies. Its holdings have a median market value of $3.3 billion, compared with $112 billion for the SPDR Energy Select Sector SPDR(XLE Quote), which is dominated by Exxon Mobil(XOM Quote) and Chevron(CVX Quote).

The Oklahoma Exchange Traded Fund employs a modified market-cap weighting system so no stock is too influential. That results in several companies of varying size. Large positions include familiar names like Devon Energy(DVN Quote) and Williams Cos.(WMB Quote), and some not so familiar, such as Continental Resources(CLR Quote). The non-energy stocks include a couple of financial companies as well as chain restaurant Sonic Corp.(SONC Quote) and LSB Industries(LXU Quote), which makes geothermal heat pumps.

The fund has 29 holdings in all, with pipeline stocks and utilities giving the fund a 2.08% dividend yield. Other energy sub-sectors include 26% in drilling and exploration, 18% in oil and gas refiners and 5% in coal.

As energy prices have rocketed this year, the index underlying the Oklahoma Exchange Traded Fund has risen 37%, double that of the Energy Sector SPDR. If energy prices fall, expect the Oklahoma fund to decline more than the sector SPDR.