Hennessy Gas: 5-Star Utility Play

05/04/2015 9:00 am EST

Focus: FUNDS

Genia Turanova

Editor, Leeb Income Performance

The five-star rated gas utility fund has outperformed its peer group in the past year; in fact, its long-term record remains top-notch, explains Genia Turanova, editor of Leeb Income Performance Letter.

Being an index fund, the Hennessy Gas Utility Fund (GASFX) owns all publicly-traded companies that comprise the American Gas Association Stock Index, market cap-weighted and adjusted for the percentage of natural gas assets on each company’s balance sheet.

Due to the fund’s mandate, and according to the index’s composition, the fund invests about 63% of its assets in utilities. Some 36% of the holdings are classified as energy, 0.5% as financials; only 0.8% is invested in cash.

Valuations remain attractive, with a median P/E of about 19, and median price-to-book of 1.8. The median market cap of the holdings is $7 billion. Turnover is modest, at 37%.

The fund is diversified across countries; while about 84% of its holdings are US companies, the fund also holds interests in Canada and the UK with 10% and 5% of assets, respectively.

While the fund’s holdings are negatively leveraged to interest rate increases, this is not the whole story. 

The US natural gas industry, and especially the gas distribution industry, is growing and the revenues and profits of holdings of the fund have historically been tied to the industry.

We agree with the fund portfolio manager Winsor Aylesworth (at the helm since 2001) that the future of the industry is relatively immune to modest increases in interest rates.

The fund’s 5- and 15-year performance puts it in the category’s first percentile; 10-year return is in the top 4th percentile, with 3- and 1-year returns in the top 10 and 24 percentile, respectively. What to do now? Continue buying Hennessy Gas Utility Fund.

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