00:00Eric was saying that you want an ETF that has a lot of names that you might not recognize and
00:06you are an energy analyst.
00:08So tell us a little bit about the companies inside crack and how they're positioned right now in week six
00:14of the war in Iran.
00:16Yeah. Hey great. Great to be with you all. So yeah crack is probably the most creative ticker in energy
00:22and it's nothing more than that crack spread.
00:25It's nothing more than a profit margin for the refiners.
00:30And this is a group of multiple refiners probably about thirty three percent.
00:35A third of that portfolio is in the U.S. and the U.S. is competitively positioned.
00:42When you think about how complex high complexity of its refinery, its refineries are relative to the rest of the
00:52world.
00:52It's advantaged because it is able to import both Canadian, Mexican and now as well Venezuelan crudes, lower cost of
01:04Venezuelan crudes and to produce the gasoline and the diesel not only for domestic consumption, but also for European consumption.
01:14The Europeans have a much more simplistic refinery capacity.
01:20And so it's an advantage for the U.S. given its ability to refine harder but cheaper refining cheaper crude
01:31oil into their into their capacity and able to ship those out to the rest of the world.
01:39Which right now it is an advantage because of the events in the Middle East.
01:44Yeah. So that is really interesting. And that's why I brought this up.
01:48And I thought this was great because you're all you do is this.
01:51You know, I look at your calendar. You're on these energy calls all day.
01:54Like and the fact that you would look at this as an ETF to play during this situation is very
01:59interesting.
01:59Let me ask you this, though. I've always kind of had a soft spot for XOP and XES and XLE.
02:05Let's say the straights opened up and we're back to normal.
02:08Do you still want to do crack or would you prefer to do one of the other ones?
02:12So in this particular case, what you have with the XLE is the broader energy complex.
02:19So you have upstream, midstream and downstream.
02:23And if things would tend to normalize, if you look out in the futures curve, if you look out in
02:29the futures prices, we're now printing somewhere around 111, $112 for the May contract.
02:36But if you look out six months from now, you're in the 70s.
02:40So the market is telling you that events would seem to be normalizing up toward the end of the year.
02:49The analog is 2022 Russia, Ukraine, where in February and mid-March of 2022, prices peaked.
02:59And by the end of 2022, we were below where we started January 2022.
03:06So if that's an analog, then if things would tend to normalize, you would see the entire energy complex retreat.
03:14And so what you would want at that point is a more defensive type of exposure, reminiscent to that 2022
03:23playbook.
03:26And that would mean sort of a broader complex of names, similar to what the XLE represents.
03:33Very, very quickly, Vince.
03:35I wanted to ask about MLPs, Master Limited Partnerships, because those are specific to the energy sector.
03:40And I wonder how they compare to these energy ETFs.
03:43So the MLP space is really a dividend play.
03:47And in an area, so you have cash flow that's repatriated to the investor base in the form of dividends.
03:58And so that dividend yield relative to the broader dividend deal, the S&P, is quite high.
04:03And so typical to a fixed income investment.
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