IMPORTANT NOTE
  • 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 oil stocks declined by a steep 60 million barrel (mb) in December to 2,680mb, led by oil supply shortage and strong demand, reached their lowest in seven years.#
  • 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 2021 was 96.65 million barrel per day (mb/d), and the total global supply of oil and natural gas was not able to meet the demand. The supply shortage is expected to continue in 2022.
  • 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 February 2021

Oil producers

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% of global production and accounts for 79.87% of global reserve in 2020, while US and Russia are one of the major oil producers.

Source: OPEC, consolidated by Samsung Asset Management (HK) Limited, as of 31 Dec 2020

How will be the trend of oil price?

After outbreak of Russia-Ukraine war on 24 Feb 2022, market worried about the global oil supply and led oil prices rising sharply. Crude oil futures surged above USD130 and reached their highest since 2008.*

According to Samsung Asset Management (Hong Kong) (SAMHK) research team, oil price uptrend has reached a temporary inflection point, because of recent negative factors including China’s recent lockdown, US release of oil reserve, and targeted interest rate increase by Federal Reserve. The ongoing Ukraine war and moderate increase in supply by OPEC+ continued to be the main positives supporting the oil market.

We expect in next few months oil price may go lower towards USD 90 level in the near term. Crude oil prices may settle at around USD 105-115 in the next 12 month when positive macro data and low inventory level may act as support for higher oil price in second half year.

*Source Bloomberg, as of 7 Mar 2022
Source: Samsung Asset Management (HK) Limited, as of 6 Apr 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 has higher correlation with oil futures prices than that of "Three barrels of oil" (Sinopec 386.HK, PetroChina 857.HK and CNOOC 883.HK) in 2021. Oil prices rose steadily in 2021 and 3175HK’s annual total return was 64.36%*. The performance was outstanding and closer to the return of oil prices than “Three barrels of oil”.

Correlation with crude oil prices in 2021

Oil related investment Code Correlation with WTI crude oil future price Performance in 2021
WTI crude oil future CL1 Comdty 1.000 55.01%
Samsung S&P GSCI Crude Oil ER Futures ETF 3175 HK 0.997 64.36%
China Petroleum & Chemical Corporation 386 HK 0.225 4.61%
PetroChina Company Limited 857 HK 0.184 44.58%
CNOOC Limited 883 HK 0.196 11.84%

Source: Bloomberg, data from 31 Dec 2020 to 31 Dec 2021

* Source: Bloomberg, as of 31 Dec 2021. 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 28 Feb 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.