What's 'Pumping Up' Energy Funds?


Richard Lehmann Image Richard Lehmann Publisher, Forbes/Lehmann Income Securities Investor

Energy has been the place to be lately, and the returns have come from one expected sector...and one totally unexpected, writes Richard Lehmann of Forbes/ISA Closed End Fund & ETF Report.

This month’s winners were broadly in the energy sector. Three funds in the best performers list were natural gas-oriented and were funds that hold limited partnerships.

The Salient Midstream & MLP Fund (SMM) was the best performer of this group, up 11.30%, followed by Tortoise North American Energy (TYN), up 10.61%, and by Kayne Anderson Midstream/Energy (KMF), up 10.25%.

Aside from natural gas pipelines, the overall best performer was another energy play, this time solar energy. The Market Vectors Solar Energy ETF (KWT) was up 13.65%. The solar sector has been under a cloud for the last three years, due to competition from Chinese manufacturers and the decline of government subsidies.

The worst performers were a variety of volatility indexes. The indexes are all keyed to option prices, which have been at historic lows in relation to past norms. It may be that option writers, aiming to enhance yields on their portfolios, are increasing the supply of options, thus lowering the price.

The energy sector remains an interesting option in that it is a hedge against inflation.