All-Cap Value Energy: A Contrarian ETF Play | David Allen

In a recent episode of “Behind the Ticker,” David Allen, CFA and founder of Octane Investments, discussed his background in finance and the firm’s strategy for its recently launched All-Cap Value Energy ETF (ticker: OCTA). Allen, who began his career in 1992 as a trader at Merrill Lynch and witnessed significant market events like the breaking of the Bank of England, developed a keen interest in geopolitics and energy markets early on. His experience spans institutional sales and trading, which later inspired him to start Octane Investments to capitalize on what he identified as a market gap created by divestment from traditional energy sectors.Allen explains that Octane Investments was founded to take advantage of the “carbon risk premium” and other risk premiums inherent in the energy market, such as the equity risk premium, the small cap premium, and the value premium. The firm focuses on identifying undervalued companies in the energy sector, particularly those that are being overlooked or divested due to environmental concerns. OCTA, Octane’s All-Cap Value Energy ETF, is structured around an all-cap value strategy, investing in energy companies with stable earnings, strong balance sheets, and a commitment to returning capital to shareholders.Throughout the conversation, Allen emphasized the significant opportunity in traditional energy sectors, despite the increasing focus on sustainability and renewable energy. He highlighted that many investors are avoiding energy stocks, leading to a scarcity of capital and undervalued opportunities in the market. OCTA seeks to capture this value by focusing on companies that are profitable, financially stable, and returning capital to shareholders, such as through buybacks and debt elimination. Allen explained that the fund’s holdings are curated based on a decision tree that screens for price-to-earnings ratios, balance sheet strength, and capital return strategies.Allen also touched on how OCTA offers exposure to a range of energy subsectors, including refiners and tankers, and discussed how the fund’s structure mitigates risks by limiting exposure to any single company. The ETF is rebalanced weekly, and the portfolio includes companies from developed markets, avoiding exposure to non-OECD markets where political risks are higher. Allen sees OCTA as a strong complementary allocation for investors who are underweight in energy and stressed that, with energy representing less than 4% of the S&P 500, there is a structural underweight in the sector that his ETF addresses.Get Brad's daily market research: Subscribe to The Signal at thorft.com/newsletterMore episodes: thorft.com/podcast