Rob Thummel

Rob Thummel grew up in a small town in Kansas and has been investing in the energy sector for 30 years. His entry into energy started at a gas station in high school, then working with petroleum engineers and geologists on what he believes was one of the first shale wells drilled in the Barnett Shale decades ago. That experience piqued his interest, and he's been at Tortoise Capital for 20 years, investing in publicly traded energy equities through multiple market cycles. When Brad asked about hobbies, Thummel kept it simple: "Probably just traditional portfolio manager stuff: a little golf, a little poker, and maybe occasionally a little bourbon."

On this episode of Behind the Ticker, Rob talks with Brad about TPZ, the Tortoise Essential Energy Fund. It's an active energy ETF that converted from a closed-end fund in late 2024, and the pitch is straightforward: skate where the puck is going in energy, not where it's been.

From Closed-End Fund to Active ETF

TPZ started life as a closed-end fund trading at a discount. Tortoise had multiple closed-end funds in this position, and new management pushed the idea of converting to an active ETF, which they didn't have. The conversion required shareholder and board approval, but it solved the discount problem and opened up investor access. The move consolidated multiple vehicles into one active ETF with the benefits of scale, and gave the team the flexibility to position the portfolio for where energy is going, not where it's been.

This is a meaningful differentiator from the XLE, the dominant passive energy ETF, which is heavily concentrated in Exxon and Chevron. Those are essentially oil and gas producers. TPZ has about 86% active share, meaning it looks nothing like the benchmark. Tortoise is making active bets on which parts of the energy sector will matter most going forward.

The AI-Energy Connection

This is where Thummel gets genuinely excited. For the first time in his three decades covering energy, the energy sector and the technology sector are intertwined. AI needs massive amounts of electricity. There is no AI without energy infrastructure. "The energy sector is doing a great job of providing the electricity," he said. "AI opportunities are a long-term secular trend. It offers a growth catalyst for the energy sector."

His thesis: energy has always provided stable income for investors. That's not going away. But now there's a growth catalyst on top of it. Income plus growth, driven by a mega trend that he thinks will play out over decades, not years. Within energy, natural gas is the area he sees benefiting most from AI-driven electricity demand. When people think "energy," they think oil. Thummel pushes back. Oil demand growth, both domestically and globally, has started to slow and will continue to slow. The growth story is in electricity and natural gas, driven by data centers and AI infrastructure. The fund positions accordingly, tilting toward electrification infrastructure and the companies supplying the build-out.

Portfolio Construction: Equities, Fixed Income, and Options

The portfolio is generally weighted about 80% equities and 20% fixed income, with the fixed income allocation ranging between 10-20% depending on the macro environment and views on rates and the economy. The fixed income sleeve is a permanent fixture, not a tactical overlay. It provides income stability while the equity sleeve captures the growth opportunity.

TPZ targets a dividend yield of about 5%, higher than competing energy ETFs and well above the S&P 500. The income comes from three sources: equity dividends, the fixed income allocation, and an options overlay for additional premium. The options component provides supplemental income generation, and the mix is managed to maintain that yield target while still capturing the upside from energy equity positions. TPZ is designed so investors can participate in the energy growth story while receiving meaningful current income.

Energy Exports and the Broader Picture

Beyond AI, Thummel sees increasing energy exports from the U.S. as another structural opportunity. The fund is positioned to capture multiple macro themes within energy: electrification driven by data centers, natural gas demand growth, and the export opportunity. The active management approach allows Tortoise to shift positioning as these themes develop at different rates. This isn't an oil fund that's trying to catch a commodity cycle. It's an energy infrastructure fund that's positioned for where the sector is going over the next decade.

Key Takeaways

• TPZ converted from a closed-end fund to an active ETF in late 2024, eliminating the NAV discount problem and consolidating multiple vehicles into one fund with 86% active share.
• The fund targets about 5% dividend yield through a combination of equity dividends, a 10-20% fixed income allocation, and an options overlay.
• Thummel's core thesis: AI is a multi-decade growth catalyst for energy. Natural gas is the biggest beneficiary of AI-driven electricity demand. Oil demand growth is slowing.
• The investment opportunity in energy has shifted from commodity cycles to structural infrastructure: electrification, data centers, and energy exports from the U.S.
• Rob Thummel has spent 30 years in energy investing, starting from a Kansas gas station and one of the first shale wells in the Barnett. Tortoise has been dedicated solely to the energy sector for over two decades.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.