In a recent episode of “Behind the Ticker,” Tim Kramer, founder of CNIC Funds, shares his extensive background in the energy industry and the innovative approach behind CNIC’s latest offering. Kramer, who has been in the energy sector since 1997, brings a wealth of experience from working with various energy companies and a private equity firm where he managed commodity exposure. This diverse background led him to identify a gap in the market: the lack of electricity in commodity indexes. To address this, Kramer and his team created the first-ever electricity index and subsequently launched the AMPD ETF (ticker: AMPD) in May 2023.
About Tim Kramer and CNIC Funds
Kramer explains that CNIC’s electricity index is a groundbreaking development, given that electricity is the most consumed commodity in the U.S. but was previously absent from major commodity indexes like the Bloomberg Commodity Index (BCOM) and the Goldman Sachs Commodity Index (GSCI). The AMPD ETF provides direct exposure to electricity futures, which are traded on the Intercontinental Exchange (ICE). By including electricity in an investable format, CNIC aims to offer investors a new way to diversify their portfolios and hedge against inflation, given electricity’s significant impact on CPI and overall economic activity.
Investment Strategy and Approach
One of the unique aspects of the AMPD ETF is its carbon-neutral status. Kramer elaborates on the use of carbon offsets in the fund, ensuring that its operations align with environmental sustainability goals. The ETF purchases carbon offsets corresponding to the electricity futures it holds, making it compliant with SFDR Article 8 standards in Europe. This approach not only addresses investor concerns about environmental impact but also positions the ETF as a forward-thinking product in the commodities market.
Kramer also highlights the strategic and adaptive benefits of investing in the AMPD ETF. Strategically, it provides long-term exposure to the electrification of America, encompassing trends like AI, electric vehicles, and increased demand for renewable energy. Tactically, it offers a compelling investment due to current market conditions, where demand for electricity is rising, supply is constrained, and the grid’s reliability is increasingly volatile. Moreover, the fund’s structure, which parks a significant portion of its assets in three-month treasuries, allows investors to earn a risk-free rate while maintaining full notional exposure to electricity futures.
Portfolio Construction and Implementation
As CNIC Funds continues to grow, Kramer emphasizes their approach to marketing and distribution, focusing on partnerships with established platforms to leverage their exclusivity on the electricity index data. This strategy aims to maximize the fund’s reach and capitalize on the unique market position of offering the first electricity-focused commodity ETF. For more information, investors can visit CNIC’s website at CNICFunds.com, where they can access white papers, podcasts, and other educational resources about the AMPD ETF and the broader electricity market.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Tim Kramer covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
So let's talk about electricity. We have a lot of, I think you're the 50th episode. We've had everything from CLOs to stocks to bonds to ETFs to funds of funds. So this is the first electricity product. And a lot of financial advisors who listen to this probably don't understand or know that electricity is even an investable universe. So can you talk about like at a high level, what are the main drivers that can affect the price of electricity and how it can move up and down as time goes on?
I'm Brad Roth, chief investment officer of Thor Financial Technologies, and portfolio manager of THLV, the Thor Low Volatility ETF. Behind the Ticker, uncovers the inner workings of the ETF industry. We will interview portfolio managers and ETF service providers to dive deep into their work lives and their businesses. We will learn the inner workings of their strategies and what drives them as they continue to grow their company. Many of these individuals are entrepreneurs, and will have unique and compelling insights to share as much goes on behind the Ticker.
Market Context and Positioning
One would be what we would say strategic, excuse me. So this strategic reason would be why do you want to buy this and hold it forever. And then the second reason would be adaptive, which is like, why do you want to buy it now? So for the strategic, like, why do you want to buy and hold it forever? If you take a look, and for the longest time, model portfolio is worth 60, 40. So 60% stock, 40% bonds.
And there's the whole, you know, we'll say reliability issue. The second thing is, when you buy AMP, to me you're basically buying futures that we package for you and ETF, if you buy a hundred dollars worth of futures, $15 goes to your broker to support the trade is margin. The other 85% at the 85 dollars goes into basically three month treasures. So you get paid the risk free rate to hold this position as you wait for the fundamentals to unfold.
If you bought a company that mined gold, well, you don't know if a hedge or didn't hedge and they've got operating expenses and overhead. So you're not getting a real pure play on the commodity if you buy the equity. So you're buying the equity for a different reason. Maybe it's a dividend or something else. So that same logic exists when you talk about electricity. So there's, you can buy stocks and companies that are called IPPs independent power producers where you can buy utility stocks.
Notable Insights
"So which we said, okay, we want the biggest, baddest, best meteorologist we could find."
"Once going to appreciate the opportunity because as you know, when you're starting up your own ETF like this, it's a difficult endeavor."
Key Takeaways
- The AMPD ETF provides direct exposure to electricity futures, which are traded on the Intercontinental Exchange (ICE).
- By including electricity in an investable format, CNIC aims to offer investors a new way to diversify their portfolios and hedge against inflation, given electricity’s significant impact on CPI and overall economic activity.
- One of the unique aspects of the AMPD ETF is its carbon-neutral status.
- The ETF purchases carbon offsets corresponding to the electricity futures it holds, making it compliant with SFDR Article 8 standards in Europe.
- Strategically, it provides long-term exposure to the electrification of America, encompassing trends like AI, electric vehicles, and increased demand for renewable energy.
- Tactically, it offers a compelling investment due to current market conditions, where demand for electricity is rising, supply is constrained, and the grid’s reliability is increasingly volatile.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Tim Kramer highlights important considerations around energy. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of energy and income investing discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Tim Kramer, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.