CFA Level I · CFA Level I Exam · Natural Resources
An investor buys shares of a listed oil and gas producer to gain exposure to oil prices. Compared with holding oil futures, the shares most likely expose the investor to which additional risk?
Producer shares most likely add company-specific operating and financial leverage risk. Returns depend on reserves, costs, management and debt, not just oil prices. Roll yield belongs to futures positions and storage costs to physical holdings.
- ARoll yield arising from contango
- BCompany-specific operating and financial leverage riskCorrect
- CStorage costs of holding the physical commodity
Explanation
Equity in a producer carries management, cost structure, reserve and financial leverage risks beyond the oil price. Roll yield applies to futures, and storage costs apply to physical holdings.
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