ENCC:CA: A High-Yielding Energy ETF with Consistent Monthly Payouts

The Global X Canadian Oil and Gas Equity Covered Call ETF (ENCC:CA) has a trailing-twelve-month yield of 14.44%, making it an attractive investment opportunity. The fund offers consistent monthly payouts and has been gaining popularity. Its trailing-twelve-month dividend yield is significantly higher than the S&P/TSX Composite Index, making it a worthwhile consideration for investors seeking higher returns.

The Global X Canadian Oil and Gas Equity Covered Call ETF (ENCC:CA) has garnered significant attention in the financial community due to its impressive trailing-twelve-month yield of 14.44%. This ETF, which has been around since 2011 under various names, has recently seen a surge in popularity, with assets under management (AUM) increasing from less than $100 million three years ago to over $546 million today [1].

ENCC:CA stands out due to its consistent monthly payouts, which have been a key factor in its growing appeal. The fund's strategy involves tracking the Solactive Equal Weight Canada Oil & Gas Index and holding its constituents in equal weight. This includes companies such as Enbridge (ENB:CA), Imperial Oil (IMO:CA), and Canadian Natural Resources (CNQ:CA). ENCC:CA also holds its own fund, the Global X Equal Weight Canadian Oil & Gas Index ETF (NRGY:CA), and sells call options to fund its monthly distributions [1].

The ETF's active covered call strategy has been particularly effective in generating consistent monthly distributions. Since 2023, ENCC:CA has provided $0.13 per share monthly, with this amount dropping to $0.12 per share in 2024 and likely to remain at this level in 2025. This consistency makes it easier for investors to manage their finances and plan for income expectations [1].

ENCC:CA's performance has been notable, with the fund outperforming the iShares S&P/TSX Capped Energy Index ETF (XEG:CA) in total returns from January 1, 2023, to the present. While ENCC:CA has underperformed during significant market growth, it has generally outperformed during downturns, leading to less volatile total returns [1].

The fund's active management and covered call strategy have allowed it to generate strong returns relative to the Canadian energy sector. ENCC:CA's options occupy about 40% of the portfolio, sold at strike prices that are, on average, 1.04% out-of-the-money (OTM). This strategy enables the fund to capture option premiums while leaving room for capital appreciation [1].

Investors should consider the risks and considerations associated with ENCC:CA. The fund's underlying holdings are Canadian oil and gas companies, and its performance is closely tied to the overall health of this sector. Additionally, the fund's equal-weighting approach may offer stronger returns than market-cap-weighted indices, but it also carries the risk of underperformance if the sector does not perform well [1].

Taxation is another important consideration for ENCC:CA investors. The fund's distributions are a mix of eligible dividends, capital gains, and return of capital (ROC). Eligible dividends are tax-efficient, and option premiums are typically treated as capital gains in Canada [1].

In conclusion, the Global X Canadian Oil and Gas Equity Covered Call ETF (ENCC:CA) presents an attractive income opportunity for investors seeking high yields. Its consistent monthly payouts, strong performance relative to the Canadian energy sector, and tax-efficient distributions make it a worthwhile consideration. However, investors should carefully evaluate the risks and consider their overall investment strategy before making a decision.

References:
[1] https://seekingalpha.com/article/4804570-enccca-an-energy-etf-that-currently-yields-14-percent-plus-with-consistent-monthly-payouts