NXFu: A High-Yield Energy Play with Technical Momentum Amid Sector Volatility

In a market riddled with uncertainty, income-focused investors often seek stability in sectors with proven cash flows—and energy remains a prime candidate. The CI Energy Giants Covered Call ETF (NXFu), yielding 6.07% as of June 2025, emerges as a compelling option for those balancing income needs with exposure to a volatile yet strategic sector. Backed by a Strong Buy technical signal and alignment with the MSCI World Energy Index, this ETF offers a structured approach to energy investing, though risks such as sector volatility and management fees demand careful consideration.

Dividend Yield: Attractive Income Amid Sector Volatility

NXFu's 6.07% dividend yield stands out in a landscape where many energy equities have seen payouts trimmed amid price swings. The ETF's forward yield, based on its most recent distribution of $0.0848 CAD (payable June 30, 2025), reflects its covered-call strategy, which involves selling call options on its underlying holdings. This strategy generates premium income, padding dividends even in sideways markets.

While the latest distribution marks a 27.4% decline from its prior payout, this dip underscores the cyclical nature of energy investing. However, the ETF's three-year dividend growth rate of 9.34% signals resilience. Investors should note that yields are sensitive to price fluctuations: as NXFu's net asset value (NAV) rises, the yield may compress. A deeper look at its dividend history can help contextualize this:

Technical Strength: A "Strong Buy" Signal in a Defensive Strategy

NXFu's technicals reflect its defensive positioning. The ETF's 14-day Relative Strength Index (RSI) has recently dipped below 30, signaling oversold conditions—a potential buying opportunity. Meanwhile, its 200-day moving average (DMA) has held firm, suggesting institutional support.

The covered-call structure itself acts as a technical advantage. By capping upside potential in exchange for steady premiums, the strategy reduces volatility. This is evident in NXFu's beta of 0.85 versus the broader energy sector, indicating lower volatility than its benchmarks.

Sector Exposure: Riding the MSCI World Energy Index

NXFu tracks the MSCI World Energy Index, which includes global giants like ExxonMobil, Chevron, and Canada's Suncor. This diversification mitigates single-stock risk while capturing the energy sector's macroeconomic tailwinds, such as rising demand from emerging markets and geopolitical shifts.

The ETF's P/E ratio of 10.62 signals undervaluation relative to its historical average, making it a bargain for long-term holders. Yet investors must monitor energy prices: a sustained dip below $70/barrel could pressure returns.

Risks and Considerations

• Sector Volatility: Energy stocks are inherently tied to commodity prices and geopolitical events. A prolonged bear market could erode both NAV and dividends.
• Management Fees (MER): NXFu's 0.65% MER is moderate but adds up over time. Passive energy ETFs with lower fees (e.g., VDE at 0.11%) may be more cost-effective for buy-and-hold investors.
• Covered Call Limitations: While the strategy dampens downside risk, it also caps upside gains. Bullish energy investors seeking leveraged exposure may prefer alternative instruments.

The hedged USD exposure of NXFu's USD-denominated shares (NXF.U) offers a tactical edge, shielding investors from Canadian dollar weakness. However, this comes at a cost: its $0.1576 USD dividend is lower than the unhedged CAD version.

Investment Thesis: A Conservative Income Play

NXFu suits income-focused investors willing to accept moderate volatility for steady payouts. Its Strong Buy technical signal and undervalued P/E suggest near-term upside, while the MSCI index alignment ensures diversification.

Recommendation:
- Buy: For investors seeking energy exposure with downside protection and a yield above 6%.
- Hold: If energy prices remain range-bound; avoid during prolonged bear markets.
- Avoid: For growth-oriented portfolios or those sensitive to MERs.

Conclusion

In a volatile energy sector, NXFu offers a disciplined approach to income generation. Its covered-call strategy and MSCI World Energy Index alignment provide a sturdy foundation, though investors must remain alert to macro risks and fee structures. For those prioritizing dividends and stability, this ETF could be a cornerstone of a diversified portfolio—especially as the sector's valuation hints at undervalued opportunities.

Final Tip: Pair NXFu with a stop-loss order and monitor energy price trends via the Brent crude futures contract for timely exits.

This analysis underscores NXFu's role as a pragmatic income vehicle in an unpredictable market. As always, diversification and risk management remain key.