The Horizons Canadian Oil And Gas Equity Covered Call (ENCC ETF) stands out for its unique approach to income generation through a covered call strategy. This review aims to unpack the nuances of ENCC, shedding light on its performance, strategy, and suitability for investors seeking to enhance their income streams without veering too far into high-risk territories.
Investment Strategy:
At its core, ENCC employs a covered call strategy, a nuanced approach where the ETF holds a portfolio of stocks and sells call options on those same stocks. This method serves a dual purpose: it aims to provide investors with potential capital appreciation from the underlying stocks and generates income from the premiums received for selling the call options. This strategy is particularly appealing in flat or moderately bullish markets, where the option premiums can significantly augment the ETF’s income.
Key Details:
Ticker: ENCC
Inception Date: April 11, 2011
Net Assets: As of January 26, 2024, the ETF boasts $240,427,269 in net assets
Exchange: Listed on the Toronto Stock Exchange, ENCC is accessible to a wide range of investors.
Eligibility: Available for all registered and non-registered investment accounts, offering versatility for different investor needs.
Fees: With a management fee of 0.65% and a management expense ratio (MER) of 0.81% as of June 30, 2023, the costs are competitive within the ETF landscape.
Performance, Fees and Yield:
ENCC has demonstrated commendable performance, with its returns reflecting the effectiveness of its covered call strategy. While the exact numbers can fluctuate based on market conditions, the ETF has historically offered a competitive yield, making it an attractive option for income-focused investors. It’s important to note, however, that the covered call strategy might cap the potential upside during strong market rallies, as the sold call options can limit the growth of the underlying assets.
| Fees | AUM | |
| XEG – Ishares S&P TSX Capped Energy Idx | 0.55 | 1,762 |
| ZEO -BMO S&P TSX Eql Weight Oil Gas Index | 0.55 | 260 |
| ENCC – Horizons Canadian Oil And Gas Equity Covered Call ETF | 0.81 | 240 |
XEG vs ENCC and ZEO: Historical performance
| SYMBOL | 3 YEAR AVG RETURN | 5 YEAR AVG RETURN |
|---|---|---|
| XEG.TO | 40.34% | 13.97% |
| ZEO.TO | 31.67% | 13.52% |
| ENCC.TO | 39.57% | 15.56% |
Summary table Risk vs Benefits of a covered call strategy
| Aspect | Description |
| Strategy | Selling call options on a security already owned in the portfolio |
| Name | Covered call strategy |
| Risk | Potential for limited upside if the stock price rises above the strike price |
| Benefit | Generates additional income through premium payments received from selling call options |
| Goal | To earn income from stock holdings while potentially reducing downside risk |
| Use | Often used by investors who are willing to sell their stock at a certain price if it reaches that level |
| Outcome | If the stock price stays below the strike price, the option expires worthless, and the investor keeps the premium payment. If the stock price rises above the strike price, the option buyer may exercise their right to buy the stock, and the investor must sell the stock at the strike price, but still keeps the premium payment. |
Distributions
| Ex-Dividend Date | Record Date | Payment Date | Payment Amount |
| 01/30/2023 | 01/31/2023 | 02/10/2023 | 0.13 |
| 02/27/2023 | 02/28/2023 | 03/07/2023 | 0.13 |
| 03/30/2023 | 03/31/2023 | 04/10/2023 | 0.13 |
| 04/27/2023 | 04/28/2023 | 05/05/2023 | 0.13 |
| 05/30/2023 | 05/31/2023 | 06/07/2023 | 0.13 |
| 06/29/2023 | 06/30/2023 | 07/10/2023 | 0.13 |
| 07/28/2023 | 07/31/2023 | 08/08/2023 | 0.13 |
| 08/30/2023 | 08/31/2023 | 09/08/2023 | 0.13 |
| 09/28/2023 | 09/29/2023 | 10/06/2023 | 0.13 |
| 10/30/2023 | 10/31/2023 | 11/07/2023 | 0.13 |
| 11/29/2023 | 11/30/2023 | 12/07/2023 | 0.13 |
| 12/28/2023 | 12/29/2023 | 01/08/2024 | 0.13 |
Top 10 Holdings
As at January 26, 2024
| Security Name | Weight |
| Pembina Pipeline Corp | 11.46% |
| TC Energy Corp | 11.08% |
| Enbridge Inc | 10.83% |
| ARC Resources Ltd | 10.48% |
| Keyera Corp | 10.34% |
| Canadian Natural Resources Ltd | 10.03% |
| Imperial Oil Ltd | 10.02% |
| Suncor Energy Inc | 9.65% |
| Tourmaline Oil Corp | 8.65% |
| Cenovus Energy Inc | 8.02% |
Conclusion:
The ENCC ETF offers a balanced approach for those looking to diversify their income-generating investments. With its strategic use of covered calls, it provides a unique blend of income and growth potential, albeit with some limitations on the upside. As with any investment, it’s crucial to consider how ENCC fits within your broader portfolio and investment goals. Thorough due diligence and consideration of your risk tolerance are advised before incorporating ENCC into your investment strategy.
For Canadian investors navigating the complexities of the market, ENCC represents a compelling option, blending innovation with income generation. As always, stay informed and consider consulting a financial advisor to tailor your investments to your personal financial landscape.