Friday, August 14, 2009
3, Issue #77
shows no sign of dropping the ball anytime soon,
so now is a great time to lock in this hefty
Lock in this high dividend today,
while it's still available.
Claymore Canadian Energy
Income ETF (NYSE: ENY) is an exchange-traded fund (ETF) that invests in
Canadian energy stocks. ENY seeks to replicate the performance
of the Sustainable Canadian Energy Index -- an index of 30 of
the most profitable and liquid Canadian royalty trusts plus the
fastest-growing oil sands producers. The largest holdings are
Canadian Oil Sands Trust (TSX: COS.UN) and Suncor Energy (NYSE:
SU), which together account for over 18% of the assets.
Distributions are made quarterly and can vary depending on
investment income. The last payment, made in June, was $0.156
per share. Payments for the last 12 months total $1.037 per
share, giving ENY a trailing yield of 7.5%.
The Canadian companies held by ENY pay dividends in Canadian
dollars. These distributions are then converted to U.S. dollars
by ENY and paid out to investors. The amount of this conversion
will fluctuate with exchange rates between the two currencies.
The U.S. dollar has fallen -15% against the Canadian dollar
since March, helping to boost the payments made to stateside
Of the payments made in 2008, 98% qualified for the lower
dividend tax rate of 15%. So far this year, payments have been
100% ordinary income paid from the fund's holdings. Total fund
expenses are 0.83% per year. For more information, you can
contact Claymore Securities at 800-345-7999.
ENY invests in two groups of energy securities: royalty trusts
and oil sands producers. Any trust classified as an oil and gas
producer falls into the fund's royalty trust category -- even if
they have exposure to oil sands production. For its oil sands
holdings, ENY considers non-trusts like Canadian Natural
Resources (NYSE: CNQ) and UTS Energy (TSX: UTS) that have a
stake in oil sands production. Increased weighting is given to
those non-trusts with a greater focus on oil sands or with plans
to increase oil sands production in the near future.
trial of our live e-mini futures trading room.
The fund attempts to lower
risk and improve returns by adjusting its holdings based on
crude oil price trends. On the last day of every quarter,
the fund determines if crude oil prices are in a "bull" or
"bear" phase by comparing the price of crude to its
four-quarter moving average. If the price is higher than the
moving average (bull phase), the fund shifts 70% of holdings
into the more aggressive oil sands companies. Oil sands
production typically requires a minimum oil price of $70 per
barrel to allow a sufficient rate of return. At prices above
this, the oil sands companies can experience rapid growth,
usually benefiting their share prices.
If the price of oil is below its four-quarter moving average
(bear phase), the fund puts 70% of its assets into royalty
trusts. These trusts may have oil sands exposure, but are
usually more focused on traditional oil and gas production.
Lower or falling oil and gas prices will still hurt the
trusts, but normally not as severely as oil sands companies,
which need the higher prices to be profitable at all.
Traditional oil/gas producers have lower costs associated
with production, meaning they can still remain profitable
and pay dividends with lower energy prices.
As you would expect, ENY's share price is heavily dependent
on oil and gas prices. As energy prices plummeted in the
second half of 2008, so did ENY. However, the fund has
staged a strong comeback alongside crude, even though
natural gas has foundered. ENY has soared more than +79%
from its March low of $7.44.
As Asian economies rebound and the U.S. economy shows signs
of stabilization, prospects for future energy prices are
looking up. In fact, Goldman Sachs raised its oil price
forecasts from a previous $45 per barrel in 2009 to $85 per
barrel by the end of 2009 and $95 by the end of 2010.
However, a change in taxation of Canadian trusts could be an
issue for the fund in the future. ENY relies on dividends
from its royalty trusts to provide income to the fund. For
example, it's fifth-largest holding, Penn West Energy (NYSE: PWE), pays a whopping 11% yield. Legislation has already
been passed to tax the trusts at 31.5% starting in 2011.
Once this taxation hits, the dividends paid by trusts could
fall. But with the recent drop in oil and gas prices, many
trusts have already cut their distributions -- future cuts
aren't likely to be any more drastic.
One other potential worry is the push toward "green" energy.
Producing crude from the oil sands takes a toll on the
environment -- it is estimated to take two tons of oil sands
to create just one barrel of oil. While it doesn't appear to
be an issue right now, potential increased environmental
regulation could drive up the costs of mining oil sands,
which could hurt the producer's profits, and the fund.
Action to Take --> For
those looking for a high-yield play on rebounding oil
prices, ENY presents an attractive opportunity.
-- Carla Pasternak
Without question, certain industries
have burned investors over the last few
years like no other time in history. But
which industry index has rebounded more
than 90% since diving more than -70% in
March of 2009?
BSE Auto Index
KBW Insurance Index (KIX)
Standard & Poor's 500 Banks Index
Standard & Poor's Retail Index (RLX)
Dow Jones U.S. Select Real Estate
Securities Index (DWRSF)
(Please click on one the
links above. After you make your choice, we'll show you
the correct answer on our web site.)
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