Energy stocks have long been synonymous with income investing. This isn’t just a perception—it’s a reality grounded in historical data. While price appreciation plays a role in total returns, a significant portion of energy investors’ gains come from dividends.

Looking at two of the largest U.S. energy companies over the past 35 years, for example, nearly 40% of total returns came from dividends¹. For broader energy indices, historical yield typically ranges between 2% and 4%, reaffirming the sector’s reputation as a cash-flow generator². Unlike high-growth industries, where capital appreciation is the primary driver, energy’s maturity as an industry means that valuation shifts and dividends carry more weight.

That said, traditional energy investing has often forced investors into a trade-off: prioritize income and give up growth, or chase appreciation and accept lower yield. But what if you could do both?

We believe a well-structured energy strategy may optimize for income while still participating in a majority of the price appreciation. By using overlays or options strategies, investors may effectively boost their yield—often into double-digit territory—without completely sacrificing upside. In an environment where energy equity valuations are reasonable but not deeply discounted, maximizing income while retaining growth exposure becomes even more critical.

Four or five years ago, when energy was trading at depressed levels, the value proposition of writing options was entirely different. In such scenarios, investors may hesitate to cap upside potential, instead choosing to fully participate in the revaluation of the stock. Today, however, valuations are much more in line with historical averages. This mid-to-late cycle environment presents an opportunity to potentially generate yield without sacrificing meaningful price upside.

WEEI Distribution Rate vs Other Asset Classes

WEEI distributions in 2024 were 62% ROC. Each month was ROC of $0.138953 per share out of $0.225 total distribution per share.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month end, please call 800.994.0755. *SEC Yields are calculated as of the most recent month end.

Fund NAV represents the closing price of underlying securities. Market Price is calculated using the price which investors buy and sell ETF shares in the market. The market returns in the table were calculated using the closing price and account for distribution from the funds. 30-day SEC yield is a standardized calculation adopted by the SEC based on a 30-day period that helps investors compare funds using a consistent method of calculating yield. The subsidized yield includes the effect of any fee waivers or expense reimbursements, while the unsubsidized yield excludes these cost reductions, showing what the yield would be if the fund had to cover all expenses from its own income.

To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fund’s prospectus, which may be obtained by calling 800.994.0755. Please read the prospectus carefully before investing.

Unlike systematic call-writing funds that cap upside at regular intervals, an active, company-by-company approach allows for strategic adjustments. For instance, in environments where valuations are compelling, option strikes may be set further out of the money—perhaps 15% instead of 5-10%—aiming to retain greater upside potential.

Beyond just the income boost, we find this approach also dampens volatility. During months of small market corrections, the additional income serves as a cushion, reducing overall portfolio swings. Over time, this has resulted in a more stable return profile, with an estimated beta of approximately 0.7-0.8 relative to the broader energy index³. All of this can be achieved while still providing monthly income distributions.

Some investors may compare covered call energy income strategies to high-yield bonds or broader call-writing ETFs. However, there are key distinctions. High-yield bonds, while offering stable income, do not provide equity upside—investors are locked into fixed debt returns. Energy stocks, on the other hand, offer both dividend yield and the potential for capital appreciation. Similarly, traditional covered-call ETFs often use systematic index options that do not differentiate between stocks. A more specialized approach, focused solely on energy and managed by experienced sector specialists, allows for nuanced decision-making at the company level and may offer a compelling yield profile without completely sacrificing capital appreciation.

Energy investing doesn’t have to be an either-or decision between yield and capital appreciation. With the right approach, investors can potentially achieve both – capitalizing on energy’s income-generating potential while still retaining the opportunity for value growth.

You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The prospectus and summary prospectus contain this and other information about the Fund and are available, along with information on other Westwood ETFs, by calling 800-994-0755 or from your financial professional. They should be read carefully before investing.

Westwood ETFs are distributed by Northern Lights Distributors, LLC. (Member FINRA) Northern Lights Distributors and Westwood ETFs (or Westwood Holdings Group, Inc.) are separate and unaffiliated.