A Fin24 reader asks:
How can one invest in oil? Are there local financial
institutions that deal with oil shares? Can one invest in ETFs (exchange-traded
funds) that trade in oil?
Johan Borcherds, regional director at PSG Konsult,
responds:
You can invest in oil by buying shares in local or
international oil companies like petrochemicals giants Sasol [JSE:SOL], Chevron and Exxon
Mobil.
These companies have operations in many parts of the world,
which means their revenue streams are balanced.
Some local brokers working for companies linked to
JSE-listed companies can always assist in the buying of these shares. Most
stockbrokers would prefer that you invest a lump sum when buying shares.
And yes, you can invest in ETFs that trade in oil. One of
the top four South African banks offers what are called Commodity Linker
Exchange-Traded Notes (ETNs), providing investors with exposure to commodities
in a cost effective manner.
A total return index is created from the US dollar (USD)
commodity future, dollar interest rates and the USD/ZAR exchange rate.
(Commodity futures are agreements to buy or sell a set
amount of a commodity at a predetermined price and date. Buyers use these to
avoid the risks associated with the price fluctuations of the product or raw
material.)
ETNs do not incur the costs of owning, storing and insuring
physical commodities. Commodity ETN return is derived from the following
sources:
- Performance of the
futures contract of the commodity: change in the dated future's USD contract
price; and
- Change in the
USD/ZAR exchange rate.
- Fin24