NML: Proving Itself As One Of The Best In Class

seekingalpha08-28

Neuberger Berman Energy Infrastructure and Income Fund Inc offers a high yield of 8.75%, making it attractive for income-seeking investors.The NML closed-end fund has outperformed the S&P 500 and ...

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href=https://seekingalpha.com/article/4717592-nml-proving-itself-as-one-of-the-best-in-class><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Neuberger Berman Energy Infrastructure and Income Fund Inc offers a high yield of 8.75%, making it attractive for income-seeking investors.The NML closed-end fund has outperformed the S&P 500 and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4717592-nml-proving-itself-as-one-of-the-best-in-class\">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":"NTOIF","symbol_name":"Neste 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(irc)"},"translate_title":"NML：证明自己是同类产品中最好的之一","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"APD":1,"WMB":1,"TYG":1,"TRMLF":1,"SUN":1,"SRV":1,"SRE":1,"NTOIF":1,"NML":1,"NFE":1,"LNG":1,"KYN":1,"KMI":1,"AMLP":1,"DTM":1,"CRC":1,"COP":1,"CNP":1,"AR":1,"EMO":1},"content_text":"Neuberger Berman Energy Infrastructure and Income Fund Inc offers a high yield of 8.75%, making it attractive for income-seeking investors.The NML closed-end fund has outperformed the S&P 500 and Alerian MLP Index, appreciating 5.12% since mid-June, with a total return boosted by distributions.The fund primarily invests in midstream energy companies, with a small allocation to electric utilities, providing stable cash flows and high dividends.Trading at a 10.49% discount to net asset value, the fund is in solid financial shape and offers a reasonable entry point.The fund fully covered its distribution over the first half of the current fiscal year, and had enough excess profits that investors should not have to worry about any cuts.   bjdlzx The Neuberger Berman Energy Infrastructure and Income Fund Inc (NYSE:NML) is a closed-end fund, or CEF, that income-seeking investors can use as a way of adding high-yielding master limited partnerships, midstream corporations, and similar energy infrastructure companies to their portfolios. The advantage is they can do this without the hassle of dealing with unrelated business taxable income or K-1 forms. This fund is generally considered one of the better ones in this segment, as it handled the 2020 industry collapse quite well and its shares are actually up since 2019:   Seeking Alpha The fund is also one of the highest-yielding ones in the sector, as this fund yields 8.75% at the present price. This is quite a bit higher than the 7.72% yield of the Alerian MLP ETF (AMLP) and is higher than most peers. We can see that here:   Fund Name Morningstar Classification Current Yield   Neuberger Berman Energy Infrastructure and Income Fund Equity-MLP 8.75%   ClearBridge Energy Midstream Opportunity Fund (EMO) Equity-MLP 6.64%   Kayne Anderson Energy Infrastructure Fund (KYN) Equity-MLP 8.22%   NXG Cushing Midstream Energy Fund (SRV) Equity-MLP 12.60%   Tortoise Energy Infrastructure Corp. (TYG) Equity-MLP 8.60%   Click to enlarge As we can clearly see, the NXG Cushing Midstream Energy Fund is the only energy infrastructure closed-end fund that manages to beat this one in terms of yield. This is something that will undoubtedly be attractive to any investor who is even considering a position in one of these funds. After all, most people who invest in master limited partnerships in the first place do so because of the high yields that are obtainable in the sector. Thus, it makes sense that these same investors would gravitate toward the funds with the highest yields. The fund’s high yield also means that investors receive a higher level of income from a given monetary investment, and we all like to have higher incomes in an inflationary environment. As regular readers might remember, we previously discussed the Neuberger Berman Energy Infrastructure and Income Fund in mid-June of this year. The equity market has generally been strong since that time, including when it comes to midstream companies. The past two years or so have proven to be a very different environment for these companies than the one that we became accustomed to before the COVID-19 pandemic. Many investors appear to be more interested in high-yielding companies than in the past, and this has been shown in their market performance. As such, we might expect that the fund’s performance has been fairly solid since our previous discussion. This is indeed the case, as shares of the Neuberger Berman Energy Infrastructure and Income Fund have appreciated by 5.12% since our previous discussion. This was far better than what the S&P 500 Index (SP500) or the Alerian MLP Index delivered over the same period:   Seeking Alpha This will undoubtedly be attractive to just about any potential investor. After all, we all like to outperform the market and overall, this fund has done a pretty good job at accomplishing this. However, there could be some concern that the fund’s shares have gotten ahead of themselves, as the lower performance of the Alerian MLP Index could suggest that the fund’s portfolio was unable to match this performance. As I noted in my last article on this fund, however:  A simple look at a closed-end fund’s price performance does not necessarily provide an accurate picture of how investors in the fund did during a given period. This is because these funds tend to pay out all of their net investment profits to the shareholders, rather than relying on the capital appreciation of their share price to provide a return. This is the reason why the yields of these funds tend to be much higher than the yield of index funds or most other market assets. Along those lines, it is generally best to consider the distributions that a closed-end fund pays out when analyzing its performance. This is because these distributions represent very real returns to the shareholders that are not going to be reflected in the price performance.  When we include the distributions that the Neuberger Berman Energy Infrastructure and Income Fund paid out since our previous discussion, we get this alternative chart:   Seeking Alpha As we can clearly see, the fund’s distribution lifted its total return over the two-month period by 150 basis points or so. The high yield of the Alerian MLP Index also lifted its total return up a bit, but not to the same extent, since the index has a lower yield than the Neuberger Berman Energy Infrastructure and Income Fund. The worst performer here in terms of total return was actually the S&P 500 Index, which represents a stark departure from the pre-pandemic market environment. Overall, it certainly appears that we are in something of a new reality now when it comes to the attractiveness of high-yielding energy infrastructure plays, as these assets have been performing very well compared to large-cap stocks for a while. In any case, investors in this fund seemingly have little to complain about when it comes to its performance. As two months have passed since our previous discussion, it is logical to assume that a few things have changed. In particular, the Neuberger Berman Energy Infrastructure and Income Fund released an updated financial report that details its performance during the first half of its fiscal year. We will pay close attention to that as we continue our discussion today, as it may reveal whether we need to update our thesis on this fund. About The Fund According to the fund’s website, the Neuberger Berman Energy Infrastructure and Income Fund has the primary objective of providing its investors with a high level of total return. Here is the full description from the webpage:   Neuberger Berman This simply tells us that the Neuberger Berman Energy Infrastructure and Income Fund invests in companies that earn their revenue by moving, storing, or processing energy. As we have discussed in various previous articles, this is the general description of a midstream energy company. The Williams Companies (WMB) offers this definition of midstream energy: Midstream companies operate the pipeline and gathering or transmission facilities that move the gas from the well (upstream) to our homes and businesses (downstream). Midstream operations also treat the product, remove water or waste products, compress it and get it ready for various markets downstream. The Williams Companies also offers this helpful graphic that originally came from the U.S. Energy Information Administration:   The Williams Companies/U.S. Energy Information Administration Thus, the Neuberger Berman Energy Infrastructure and Income Fund is generally going to be investing in midstream companies, according to the description that was provided on the website. It is worth noting though that the website’s description does not explicitly state that the fund will only be investing in companies that provide infrastructure for the oil and gas industry. The fund’s statement that it “focuses on companies that provide essential services to move, store, and process energy” could also be applied to electric utilities. After all, the primary business function of an electric utility is to move electricity from a generation facility to our homes and businesses. The semi-annual report appears to concur with electric utilities, fitting with the fund’s strategy. The portfolio commentary section even includes the following paragraph: Utilities, following a challenging previous year, have done well thus far in 2024 and have bolstered the Fund’s performance. Electricity producers have been increasingly shifting from coal to natural gas and renewable energy sources, which lower overall CO2 emissions, a trend we believe is playing out globally. Since 2010, the natural gas portion of the power mix has risen steadily from 24% to 43% of all domestic electricity consumed in 2023. There is no reason for the fund’s commentary to include anything about the performance of utilities unless it invests in these companies. However, this paragraph could be taken in another way. The fund’s management makes mention of the rising proportion of natural gas in the nation’s energy mix. Unlike with coal, utilities do not keep a substantial amount of natural gas in on-site storage at their generation plants. Rather, midstream companies such as The Williams Companies or Kinder Morgan (KMI) deliver it to the electric generation plant on a constant basis. Thus, the trend away from coal and towards natural gas has resulted in traditional oil and gas midstream companies transporting more natural gas, which causes their cash flows to increase. While that statement may not necessarily mean that the fund is going to invest in utilities, this fund does, in fact, have a few holdings in the sector. The semi-annual report lists the following:   Industry Sector % of Net Assets   Electric Utilities 4.0%   Independent Power and Renewable Energy Producers 6.1%   Multi-Utilities 10.4%   Renewable Electricity Partnerships 1.7%   Click to enlarge This totals 22.2% of the fund’s net assets being invested in electric generators or utilities of some sort. This is, admittedly, not really that much for an energy infrastructure fund. After all, the First Trust funds frequently had a much larger allocation to electric utilities than this. However, it is still a large enough allocation to provide this fund with limited exposure to the fundamentals of electric utilities. This could be a good thing, as things such as artificial intelligence and electric vehicles will almost certainly cause electric consumption to increase significantly in the coming years (see here). This fund is not as good a way to play this dynamic as a pure utility fund, though, as it only has 22.2% of its assets invested in electric producers. As might be expected, then, the majority of the fund’s net assets are invested in traditional oil and gas midstream plays. The semi-annual report shows the following asset allocation as of May 31, 2024:   Industry Sector % of Net Assets   Capital Markets 1.5%   Electric Utilities 4.0%   Independent Power and Renewable Energy Producers 6.1%   Multi-Utilities 10.4%   Oil, Gas & Consumable Fuels 62.8%   Oil, Gas & Consumable Fuel Partnerships 2.4%   Oil & Gas Storage & Transportation 35.0%   Renewable Electricity Partnerships 1.7%   Money Market Fund 0.3%   Click to enlarge The two “Oil, Gas & Consumable Fuels” categories all consist mostly of companies that would be considered a midstream corporation or a midstream partnership. For example, here are the companies that are listed as the fund’s holdings under the “Common Stocks” segment of the portfolio:   Fund Semi-Annual Report Of these companies, Air Products and Chemicals (APD), Antero Resources (AR), California Resources Corp. (CRC), ConocoPhillips (COP), Exxon Mobil (XOM), Neste Oyj (OTCPK:NTOIF), New Fortress Energy (NFE), Occidental Petroleum (OXY), and Tourmaline Oil Corp. (OTCPK:TRMLF) are not, strictly speaking, midstream companies. Some readers might debate whether Cheniere Energy (LNG) is actually a midstream company or not, but most sources consider it to be similar enough to one to include it in this category. The remainder of these are all pipeline operators of various types. The sole company listed under “Oil, Gas & Consumable Fuels Partnerships” is Sunoco LP (SUN), which has operations in the midstream and downstream segments of the energy industry. Thus, we can clearly see that this fund is heavily invested in midstream energy, which is what many investors in this fund would expect. This is nice because these companies generally have stable cash flows over time and pay out a significant proportion of their cash flows to their investors as dividends or distributions. The fund’s description on the website does state that it expects a significant proportion of its total return to come in the form of dividends and distributions. This also fits perfectly with what investors likely expect the fund to have. Most of the fund’s largest holdings are midstream companies. The fact sheet provides this list of its largest positions as of June 30, 2024:   Fund Fact Sheet Of the companies on the list, CenterPoint Energy (CNP) and Antero Resources are the only companies that are not midstream firms. This, therefore, reinforces the fact that this fund is primarily focused on midstream companies, even though it has other things included in the portfolio. The only significant change that we see here compared to the fund’s largest positions at the time of our last discussion is that Sempra (SRE) was removed from the list and replaced with DT Midstream (DTM). Sempra was still in the fund’s portfolio as of May 31, 2024, though, so this change may have been simply due to the company’s stock not performing as well as some others. If that is the case, then the stronger performing companies could have simply seen their position size increase enough to knock it off the list. However, Sempra’s stock price increased 6.59% during the second quarter, so that seems unlikely:   Seeking Alpha Thus, what we are probably seeing here is one of two possibilities:  The fund took some of its gains in Sempra, reducing its position size but keeping some exposure to the company, or The fund sold out of Sempra completely in June.  There is no way to know for sure what happened here until the fund releases its third-quarter 2024 holdings report in a few months. However, for now, we can clearly see the change. Leverage As is the case with most closed-end funds, the Neuberger Berman Energy Infrastructure and Income Fund employs leverage as a method of boosting the effective yield and total return that it earns from the assets in its portfolio. I explained how this works in my previous article on this fund:  In short, the fund borrows money and then uses that borrowed money to purchase common units of midstream partnerships or corporations. As long as the purchased assets have a higher yield 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. This fund is capable of borrowing money at institutional rates, which are considerably lower than retail rates. As such, this will usually be the case. With that said though, the beneficial effects of leverage are not as great today with interest rates at 6% as they were three years ago when interest rates were at 0%. Fortunately, most midstream partnerships have yields above 6% so this strategy still works to boost the effective portfolio yield. Unfortunately, the use of debt in this fashion is a double-edged sword because leverage boosts both gains and losses. As such, we want to ensure that the fund is not using too much leverage because that would expose us to an excessive amount of risk. I do not usually like a fund’s leverage to exceed a third as a percentage of its assets for this reason.  As of the time of writing, the Neuberger Berman Energy Infrastructure and Income Fund has leveraged assets comprising 17.07% of its portfolio. This is a slight improvement over the 17.45% leverage that the fund had the last time that we discussed it. I will admit that I expected it to have seen its leverage decline a bit more based on the share price performance. However, the fund’s net asset value is only up 2.86% since the time of our previous discussion:   Barchart This is, obviously, much less than the fund’s share price appreciated over the same period, a trend that has been something of a common theme lately, as many closed-end funds have seen their share price outperform their actual portfolios. This has a noticeable effect on the fund’s valuation, which we will discuss later in this article. For now, the takeaway is that the fund’s net asset value increased slightly over the period, so it makes sense for its leverage to decline slightly. After all, that will typically be the case unless the fund goes out and borrows more money. This fund did not do that. The fund’s leverage is well below the one-third of assets maximum that we would ordinarily want to see. That alone is a good thing for any risk-averse investor, but let us compare the fund to its peers to make sure that its leverage is appropriate for its strategy. This table provides a summary:   Fund Name Leverage Ratio   Neuberger Berman Energy Infrastructure and Income Fund 17.07%   ClearBridge Energy Midstream Opportunity Fund 29.34%   Kayne Anderson Energy Infrastructure Fund 22.27%   NXG Cushing Midstream Energy Fund 29.23%   Tortoise Energy Infrastructure Corp. 21.00%   Click to enlarge (All figures from CEF Data.) As we can see, the Neuberger Berman Energy Infrastructure and Income Fund has the lowest level of leverage of its peers. This basically shows that this fund’s leverage is pretty reasonable given its current strategy. Overall, investors should not have any outsized risks regarding the fund’s leverage here. Distribution Analysis The primary objective of the Neuberger Berman Energy Infrastructure and Income Fund is to provide its investors with a high level of total return. However, the fund’s website specifically states that it expects much of its total return to come in the form of distributions paid to its shareholders. To this end, the fund pays a regular monthly distribution of $0.0584 per share ($0.7008 per share annually). This gives the fund a reasonably attractive 8.75% yield at the current share price. However, the fund has not been especially consistent regarding its distribution over the years:   CEF Connect From the previous article: As we can see here, the fund had to cut its distribution dramatically in response to both the events of 2015 and 2020. This is not exactly surprising since both years saw pretty much everything related to the traditional oil and gas industry collapse in price. The industry was generally struggling to obtain capital and many companies changed their business models or overall strategy. For example, we saw numerous midstream companies reduce their distributions in an effort to become less dependent on the capital markets for financing. This naturally resulted in the fund taking substantial realized and unrealized losses and it had to reduce its distributions in order to preserve its net asset value. The Neuberger Berman Energy Infrastructure and Income Fund was not alone in this. In fact, every closed-end fund that invests in this sector had to make similar distribution cuts. This one has done a better job of restoring it than many of its peers since that time though, as the current payout is actually slightly higher than the fund was paying out prior to the COVID-19 pandemic. As such, while its history might be a bit of a turn-off for some, this fund still looks better than most in this respect. As of the time of writing, the most recent financial report that is available is the semi-annual report for the six-month period that ended on May 31, 2024. A link to this report was provided earlier in this article. As this is newer than the one that available the last time that we discussed NML, it should suffice for update purposes as well, considering how well NML did at covering its distribution over the first half of this year. For the six-month period that ended on May 31, 2024, the Neuberger Berman Energy Infrastructure and Income Fund received dividends and distributions totaling $14,648,694 and interest income of $140,438. However, some of this money came from master limited partnerships and so is not considered to be investment income for tax or accounting purposes. As such, the fund only reported a total investment income of $7,759,536 for the six-month period. This was not enough to cover the fund’s expenses, and so the fund ended up reporting a $1,271,802 net investment loss. Obviously, that was not sufficient to cover the $19,853,288 that the fund paid out in distributions over the six-month period. Fortunately, this fund was able to make up the difference through capital gains. For the six-month period that ended on May 31, 2024, the fund reported net realized gains of $33,927,799 along with net unrealized gains of $31,970,887. Overall, the fund’s net assets increased by $44,773,596 after accounting for all inflows and outflows during the period. The fund’s total annual distributions were $39,706,576 in the most recent full-year period. Thus, we can see that simply the excess investment profits earned in the six-month period covered by this report were enough to carry the fund through at least another year. Overall, then, it does not seem like we need to worry too much about this distribution right now. This fund is in solid financial shape. Valuation Shares of the Neuberger Berman Energy Infrastructure and Income Fund are currently trading at a 10.49% discount to net asset value. This is a very attractive discount, and it is better than the 9.27% discount that this fund’s shares have averaged over the past month. Thus, the current price appears to be a reasonable entry point. Conclusion In conclusion, the Neuberger Berman Energy Infrastructure and Income Fund is one of the better energy infrastructure closed-end funds. This fund has completely recovered from all the losses that it suffered during the pandemic, and indeed appears to be earning sufficiently high returns to finance its distribution for at least the next year. The fund also should be a bit safer than many others due to its low leverage. Overall, this fund appears to be an excellent way to add a portfolio of midstream corporations and master limited partnerships to a portfolio.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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