TYG: Improving Fundamentals And Strong Recent Performance

seekingalpha06-26

Tortoise Energy Infrastructure Corporation is a closed-end fund providing exposure to midstream master limited partnerships and energy corporations.The TYG closed-end fund's yield of 8.44% is ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTYG: Improving Fundamentals And Strong Recent Performance\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-26 05:37 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4701031-tyg-improving-fundamentals-and-strong-recent-performance><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Tortoise Energy Infrastructure Corporation is a closed-end fund providing exposure to midstream master limited partnerships and energy corporations.The TYG closed-end fund's yield of 8.44% is ...</p>\n\n<a href=\"https://seekingalpha.com/article/4701031-tyg-improving-fundamentals-and-strong-recent-performance\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4701031-tyg-improving-fundamentals-and-strong-recent-performance","article_id":"2446872013","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/157335817/image_157335817.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2446872013","pubTimestamp":1719351460,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Tortoise Energy Infrastructure Corporation is a closed-end fund providing exposure to midstream master limited partnerships and energy corporations.The TYG closed-end fund's yield of 8.44% is competit","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"TYG：基本面改善，近期表现强劲","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMLP":1,"CEM":1,"ENLC":1,"KYN":1,"NML":1,"SRV":1,"TRGP":1,"TYG":1},"content_text":"Tortoise Energy Infrastructure Corporation is a closed-end fund providing exposure to midstream master limited partnerships and energy corporations.The TYG closed-end fund's yield of 8.44% is competitive but lower than some peers, but it compares very well to the market.Despite historically lagging, the TYG CEF has outperformed indices and peers recently.Recent reports indicate that the fundamentals for oil and gas are stronger than commonly believed, and that should benefit the securities held by this fund.The fund has a reasonable level of leverage and trades at a massive discount to net asset value.   HHakim/E+ via Getty Images Tortoise Energy Infrastructure Corporation (NYSE:TYG) is a closed-end fund, or CEF, that investors can purchase as a way of adding exposure to midstream master limited partnerships and other midstream energy companies to their portfolios. As is the case with most midstream closed-end funds, this one allows the inclusion of energy partnerships into a tax-advantaged account without the tax hassles that can sometimes accompany this task. This is a very nice thing for retirees, since master limited partnerships have a number of characteristics that are quite attractive for individuals who require income. In particular, most master limited partnerships enjoy remarkably stable cash flows and pay out fairly high yields. For example, the Alerian MLP Index (AMLP), which tracks an index of master limited partnerships, has a trailing twelve-month yield of 7.43% at its current level. This is far better than the yields that can be obtained from the major domestic stock indices:   Wall Street Journal As we can clearly see, the S&P 500 Index (SP500) only yields 1.34% at its current level. The NASDAQ 100 Index (NDX) and the Russell 2000 Index (RTY) are not any better. We can immediately see that none of these indices has a yield that is sufficient for most retirees or other investors depending on income to pay their bills. Master limited partnerships, on the other hand, most certainly do. Tortoise Energy Infrastructure Corporation manages to do even better than the Alerian MLP Index in terms of yield. As of today, the closed-end fund yields 8.44%. This is certainly respectable, but it is actually a bit lower than some other midstream closed-end funds possess:   Fund Name Morningstar Classification Current Yield   Tortoise Energy Infrastructure Corporation Equity-MLP 8.44%   ClearBridge MLP and Midstream Fund (CEM) Equity-MLP 6.69%   Kayne Anderson Energy Infrastructure Fund (KYN) Equity-MLP 8.43%   Neuberger Berman Energy Infrastructure and Income Fund (NML) Equity-MLP 9.03%   NXG Cushing Midstream Energy Fund (SRV) Equity-MLP 12.87%   Click to enlarge As I pointed out in a previous article, the ClearBridge MLP and Midstream Fund has a substantially lower yield than the offerings from other fund sponsors. This includes Tortoise Energy Infrastructure Corporation. We can see, however, that the Tortoise Energy Infrastructure Corporation’s current yield is not particularly impressive compared to the other funds that are using similar strategies. Yields are generally pretty important to anyone who might consider purchasing shares in a fund such as this, so that could reduce the appeal of this fund somewhat. With that said, though, the fund’s yield is still generally pretty competitive with the index. As regular readers might remember, we previously discussed Tortoise Energy Infrastructure Corporation in late March of this year. At the time, I saw no near-term catalyst to push the fund’s share price higher. However, the market as a whole has gravitated higher, and it has not completely left the midstream sector behind. This was a welcome change from the situation that we saw over most of the past decade. As such, we might expect that the shares of Tortoise Energy Infrastructure Corporation have delivered a reasonable return since the publication date of that previous article. This is indeed the case, as shares of the fund have appreciated by 12.28% since the date that the previous article was published:   Seeking Alpha As we can immediately see, shares of Tortoise Energy Infrastructure Corporation have managed to beat the S&P 500 Index by a considerable margin over the period. They have also outperformed the Alerian MLP Index. This is actually a bit surprising because this fund is historically a bit of a performance laggard. We saw this in the previous article. In this case, though, the fund not only managed to outperform the comparable index but also its peers:   Seeking Alpha This is certainly not something that we expected to see. After all, the fund is historically an underperformer. However, the fact that it delivered such a strong relative performance over the past three months is certainly something that we can appreciate. As I stated in the previous article: Closed-end funds typically pay out most or all of their investment profits to their investors in the form of distributions. The basic objective is to keep the portfolio relatively stable in size while giving the investors all of the profits. This differs somewhat from an exchange-traded fund that rarely has any realized capital gains and relies primarily on share price appreciation to reward its investors. The fact that these funds pay out all of their investment profits is the reason why they tend to have higher yields than just about anything else in the market. It also results in shareholders doing much better than the price performance alone would suggest. Therefore, we need to include the distributions that the fund pays out in any discussion of its performance. When we include the distributions that were paid out by the Tortoise Energy Infrastructure Corporation, as well as all the fund’s peers, we get this chart showing total return over the period:   Seeking Alpha This is a chart that is certainly surprising to see. The Tortoise Energy Infrastructure Corporation, which historically lagged its peers in terms of performance, was actually the top-performing energy infrastructure fund over the past three months. This certainly serves as evidence that past performance is no guarantee of future results, which is a maxim that works both ways. As three months have passed since the last time that we discussed this fund, we can expect that there have been quite a few changes to this fund and its portfolio. There were also some changes to the macro-environment for energy companies in general, as the predictions of oil consumption declining have proven once again to be false. In fact, by most indications, the overall macro-environment is better for midstream energy companies than it has been in many years. We will discuss that today as we update our thesis for Tortoise Energy Infrastructure Corporation. About The Fund According to the fund’s website, Tortoise Energy Infrastructure Corporation has the primary objective of providing its investors with a very high level of after-tax total return. This is not astounding, as it is the same objective that is possessed by most energy infrastructure funds. Unfortunately, the website does not really provide much information about how the fund expects to achieve this objective. Rather, all the website states is:   TortoiseEcofin The only thing that this tells us is what is contained in the first bullet point. In short, the fund includes some exposure to energy infrastructure companies such as midstream firms, utility companies, and renewable energy producers. It does not tell us whether the fund is buying common equities, preferred equities, debt, or some combination of all of these things. This is significant because the types of securities that the fund invests in will have a significant impact on the characteristics of the fund’s investment profits as well as its market performance. After all, common equities typically deliver higher capital gains than preferred equity and debt, but also frequently have lower yields. That is particularly true with renewable energy companies and utilities, neither of which will normally match the 7%+ yields that can be obtained from many midstream partnerships. The fund’s annual report also does not provide much detail about its strategy, but it does add a little bit of information. From the report: Tortoise Energy Infrastructure Corp. seeks a high level of total return with an emphasis on current distributions paid to stockholders. TYG invests primarily in equity securities in energy infrastructure companies. The fund is positioned to benefit from growing energy demand and accelerated efforts to reduce global CO2 emissions in energy production. Energy infrastructure companies generate, transport and distribute electricity, as well as process, store, distribute and market natural gas, natural gas liquids, refined products and crude oil. The description adds the fact that the fund invests primarily in equity securities. This is a useful piece of information, as it suggests that the returns will come from both capital appreciation and current income (via the distributions and dividends paid out by the companies in the portfolio). This makes sense with the total return objective. However, the statement still suggests that the fund can have a sizable minority of its portfolio invested in debt or preferred equity securities. After all, the word “primarily” only tells us that more than 50% of the portfolio will be in common equity securities. The fund still might have anywhere from 0% to 49% invested in debt, preferred equity, or something else. The fund’s first-quarter 2024 holdings report states that its portfolio consisted of the following securities on February 29, 2024:   Security Type % of Net Assets   Common Stocks 97.0%   Master Limited Partnerships 27.0%   Private Investments 3.8%   Preferred Stock 1.3%   Money Market Funds 0.1%   Click to enlarge As of February 29, 2024, there are no debt securities in the fund. Everything listed in the first-quarter holdings report is a common equity security, except for the money market fund holdings and a single preferred stock position. The preferred stock position consists solely of EnLink Midstream (ENLC) variable-rate preferred stock:   Fund Q1 2024 Holdings Report This position appears to consist of the EnLink Series C preferred stock. This is a variable rate preferred issue with a floating coupon of 3-month SOFR plus a term SOFR of 0.26161% plus a 4.11% spread:   EnLink Midstream This works out to a variable yield of 3-month SOFR + 4.37161%. If the fund simply rounds that to two significant digits, then it will get the yield stated in the holdings report. EnLink Midstream’s only other preferred equity issue, the Series B preferreds, has a payment-in-kind distribution that does not match up with what the fund claims to own. Thus, these must be the Series C preferreds. I will admit that this is actually a bit disappointing. EnLink Midstream has been a stellar performer in the market over the past year:   Seeking Alpha This is partly due to the company’s ambitions in carbon capture and storage technologies, which have been promoted by the Biden Administration in alignment with its goals of reducing the country’s carbon emissions. I discussed this in great detail in a previous article. The 33.20% return that the company’s common equity delivered over the past year is obviously superior to the 9.76% current yield of the Series C preferreds. With that said, the fund was holding 520,687 common units of EnLink Midstream on February 29, 2024. Thus, it probably benefited from the strong price appreciation that was delivered by the common units. However, I cannot help but bemoan the fact that the fund would have made even more money had it used the money that is invested in the preferred equity to purchase the EnLink Midstream common units instead. One interesting thing that we noticed in the fund’s holdings report is that its allocation to common stocks went down substantially from the levels that it had the last time that we discussed the fund. The fund’s allocation to master limited partnerships increased over the same period. This table summarizes the changes that we see:   Asset Type % of Net Assets as of November 30, 2023 % of Net Assets as of February 29, 2024 % Change   Common Stock 101.1% 97.0% -4.1%   Master Limited Partnerships 22.9% 27.0% +4.1%   Private Investment 3.8% 3.8% 0%   Preferred Stock 1.2% 1.3% +0.1%   Money Market Fund 0.1% 0.1% 0%   Click to enlarge The only significant change was the shift from common stock to master limited partnerships. The Alerian MLP Index was up 3.70% over the period, so it is possible that some of this change was due to strong performance by the master limited partnerships held by the fund compared to the common stocks. There is no index tracking midstream corporations, but two of the largest three corporate holdings of the fund declined over the period:   Seeking Alpha As we can see, except for Targa Resources (TRGP), the largest holdings of the fund generally underperformed the Alerian MLP Index over the course of the fund’s first quarter of the 2024 fiscal year. This, therefore, could be the cause of the fund’s allocation to master limited partnerships increasing so significantly over the course of the quarter. However, this fund also has a 41.98% turnover rate, so it may have engaged in some trading activity to alter its portfolio in favor of better-performing assets. Strengthening Macro-Environment For Traditional Energy Companies As mentioned in the introduction, the macro-environment for traditional energy companies has been improving, despite media commentary to the contrary. Last Thursday, the Energy Institute released its Statistical Review of World Energy for 2024. This report provides an unbiased view of the trends that occurred in the global energy market during 2023. One of the nice things about this report is that it does not include predictions about the future, as many other similar reports do. This is something that could be critical to investors right now, as the annual updates provided by the International Energy Agency and the Organization of Petroleum Exporting Countries tell wildly different stories that have resulted in many market participants declaring one or the other to be tainted by analyst bias. In particular, the International Energy Agency predicts that global crude oil production will peak in 2029 and then start declining as we enter the third decade of the 21st century. The Organization of Petroleum Exporting Countries predicted last October that global oil consumption would continue to grow until at least 2045. Obviously, one of these two sources must be incorrect, and both have been accused of biasing their predictions to serve an agenda. The Statistical Review of World Energy, meanwhile, simply states what occurred in 2023 so it cannot really be accused of such bias. Here are a few highlights from the report:  Global oil consumption rose in 2023 and surpassed 100 million barrels per day for the first time in history. China overtook the United States as the nation with the highest refining capacity in the world. Global gasoline consumption passed 25 million barrels per day in 2023, a slight increase over the previous 2019 peak. Fossil fuel consumption increased by 1.5% year over year in 2023. Oil production in the United States increased by 9% year-over-year. Coal consumption increased by 1.6% year-over-year, exclusively caused by rising consumption in China and India.  The takeaway here appears to be that the “green” hopes of declining consumption of fossil fuels so far is not occurring. However, there was not a single European country that increased its fossil fuel use in 2023. The consumption growth primarily came from emerging markets, which is what I have predicted would be the case in various previous articles. It seems unlikely that these countries will willingly reduce their energy consumption in the coming years just to satisfy the demands of the developed countries, so odds are that the predictions of a peak in fossil fuel use during the current decade are unlikely to actually occur. That can benefit the companies that are held by Tortoise Energy Infrastructure Corporation, however. In particular, note the steep increase in American crude oil production. Midstream companies make their money based on the volume of resources that are transported, so when more resources are transported, the revenue and cash flow of these companies go up. The rise in American oil production means that more resources need to be transported from the oil fields to the market, and it is the midstream companies that this fund invests in that will provide these transportation services. Thus, rising oil production means that the companies held in this fund should experience improving financial performance. It should be fairly obvious why investors in the fund would benefit from this. Overall, it appears that the trends that the Statistical Review of World Energy shows strengthen our thesis for investing in Tortoise Energy Infrastructure Corporation. Leverage As is the case with most closed-end funds, Tortoise Energy Infrastructure Corporation employs leverage as a method of boosting the effective yield that the fund earns from the assets in its portfolio. I explained how this works in my previous article on this fund:  In short, the fund is borrowing money and using that borrowed money to purchase common equities of midstream and renewable companies. As long as the purchased assets deliver a higher total return than the interest rate that the fund has to pay on the borrowed money, the strategy works pretty well to boost the effective yield of the portfolio. As this fund is capable of borrowing money at institutional rates, which are considerably lower than retail rates, this will usually be the case. However, it is important to note that this strategy is not as effective today with interest rates at 6% as it was three years ago when rates were at 0%. However, the use of debt in this fashion is a double-edged sword. This is because leverage boosts both gains and losses. Thus, we want to ensure that the fund is not using too much leverage since that would expose us to too much risk. I generally do not like to see a fund’s leverage exceed a third as a percentage of assets for this reason.  As of the time of writing, Tortoise Energy Infrastructure Corporation has leveraged assets comprising 20.90% of its portfolio. This is a substantial decrease over the 22.70% leverage ratio that the fund had the last time that we discussed it. This is a positive sign, as generally speaking, a reduction in leverage reduces our risk as investors in a fund. It is not surprising that the fund’s leverage has declined compared to what it had at the time of our previous discussion. This chart shows the fund’s net asset value from March 22, 2023 (the date of the previous article’s publication) until today:   Barchart As we can clearly see, Tortoise Energy Infrastructure Corporation has seen its net asset value increase by 9.12% over the past three months. This means that the size of its portfolio has increased, so all else being equal, its outstanding debt now represents a smaller proportion of the fund’s portfolio. The current leverage ratio of the Tortoise Energy Infrastructure Corporation compares pretty well with its peers:   Fund Name Leverage Ratio   Tortoise Energy Infrastructure Corporation 20.90%   ClearBridge MLP and Midstream Fund 13.61%   Kayne Anderson Energy Infrastructure Fund 22.62%   Neuberger Berman Energy Infrastructure and Income Fund 17.45%   NXG Cushing Midstream Energy Fund 25.86%   Click to enlarge (all figures from CEF Data.) As Tortoise Energy Infrastructure Corporation’s leverage is reasonably in line with its peers, we can conclude that the fund is not employing an excessive amount of leverage for its strategy. Thus, investors should not need to lose any sleep over this fund’s borrowing to boost returns. The balance between the risk and the potential reward of leverage appears to be reasonable here. Valuation Shares of Tortoise Energy Infrastructure Corporation are currently trading at a 17.18% discount to net asset value. This is in line with the 17.22% discount that the shares have had on average over the past month. Thus, the current price appears to be very reasonable for an entry point. Conclusion  In conclusion, the overall environment for midstream energy appears to be strengthening, as rising domestic oil production and global consumption should result in higher volumes for the companies that Tortoise Energy Infrastructure Corporation invests in. The fund has reacted appropriately, as the share price has surged over the past three months along with the fund’s net asset value. The fund is still trading at a very attractive discount, though, so it remains worthy of consideration.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446872013"}