Larry Berman CFA, CMT, CTAHorizons Enhanced Income Energy ETFENCC.TOHOLDJan 29, 2024

ENCC has a covered call component, which can be difficult with the volatility. Use this one if you're looking more for income.

If you don't want the covered call just go with the XEG, the Canadian basket. Quite a few advantages:  we're isolated from the Iran conflict, our infrastructure is good, and we have at least some pipelines.

Though the conflict may get resolved "tomorrow", the price of oil isn't coming down to $60/barrel anytime soon.

A really important question, especially if you're relying on this to buy groceries. Believes the yield right now is a high ~14%. Anytime he sees a double-digit yield, he wants to do some extra due diligence just to make sure what's going on. He thinks it's a bit high. He prefers to see a yield around 9-10%, which would be sustainable. Outlook for oil is not as positive.

The underlying companies pay ~4-4.5% dividend, and the rest is coming from the covered call strategy. But you're also looking at appreciation (or depreciation) of companies in the sector. Ideally, if the ETF moved sideways with volatility then everything would be good. 

If you bought this ETF when it first came out (around 2011), you'd still not be at breakeven. A very few clients own this one.

Is the Global X oil and gas, covered call, income ETF. Compare to ZEO, which boasts 13% this year vs. ENCC's 12%; while over 3 years, it's 46% vs. 40%. The difference lies in the covered writing; you sell some of that future growth to create income now. That's neither good or bad. Also, gas and oil stocks are more volatile, though that makes call premiums higher but adds income.

Enhanced monthly income via covered calls. Taps into energy required for the AI buildout.

Classic scenario of where covered writing really helps -- the flat or slightly up/down market. He's bullish on nat gas 3-5 years out, but not a raging bull on it at the moment. So this gives you income to ride out as you wait for the wave; at that time, you can stop the covered writing and own securities outright.

High volatility provides very nice covered call income from the portfolio. And that income insulates somewhat from the volatility.

Oil has been rangebound from $60-83 in recent years on geopolitical tensions. The volatility plays into the covered call strategy here.

He likes the idea of adding on weakness, that's what he's been doing. He uses a lot of optionality in his portfolios. So he's writing puts in the energy sector to acquire companies; if they don't go to those prices, he just earns the income. He's perfectly happy with a strategy like that at this point.

If we get a harder economic landing at some point, then oil has some more downside. The US outlook for crude oil demand was just downgraded. We're in a trading range, and he's accumulating into weakness.

He doesn't use leverage so check for it. It has a covered call approach. Wait for a decision on tariffs.

Not closely familiar with this one. But in general, the energy sector is one that could start to move positively simply because he thinks there's going to be a change in Canadian government. It might be the place to be.

Is more diversified that XEG; ENCC spreads the energy bet more. There's talk of Trump wanting to reduce oil prices, but natural gas prices are probably much more bullish. So Canadian energy companies here offer more nat gas than oil exposure vs. the US.

An equal-weight index in energy, not market cap. Half of this is a covered call strategy, so you keep half the upside. MER of 0.84%.

Bullish on energy.
Good long term hold.
High dividend yield that can be risky (13%).