Gas Up with This MLP Fund

04/12/2013 9:00 am EST

Focus: FUNDS

Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

Cold weather this past winter has increased demand for natural gas, making this discounted fund very attractive, says Richard Lehmann of Forbes/ISA Closed End Fund & ETF Report.

This month’s big winner was natural gas, with five of the top seven performers in this sector. Natural gas prices have been spiking, rising more than 60 cents to its current price of over $3.90, with most of the rise occurring in the last month.

The best performing fund to capitalize on this gain was the iPath DJ-AIG Natural Gas ETN (GAZ), which was up 20.85% in the past month. However, this ETN lost 51.95% over the last year. The United States Natural Gas Fund ETF (UNG) was up a bit less, with a gain of 19.07%, but with a much better year long performance, showing a gain of 15.05%.

The natural gas price spike has been powered by the recent colder than normal temperatures, which has increased demand. The higher demand has diminished the glut of natural gas on the market.

The fracking revolution has meant increased production, to the point that storing all the excess gas has been a problem. The resulting low prices caused utilities to switch from coal to natural gas, and there were even trucking companies that converted their vehicles to run on natural gas.

We looked for ways to participate in the natural gas sector. And in addition to ETFs that invest in the sector, we found a dividend-paying closed-end fund that trades at a discount.

ClearBridge Energy Master Limited Partnership Trust Fund (CTR) has a distribution yield of 6.17%. Its net asset value of $21.49 gives the fund a discount of -0.28%. The 52-week average discount for the fund is actually a premium of 2.01%.

The fund invests in energy master limited partnerships that are engaged in the business of exploring, developing, producing, gathering, transporting, processing, storing, refining, distributing, mining, or marketing natural gas, natural gas liquids, crude oil, refined petroleum products, or coal.
Its largest investment is in the Gathering/Processing of natural gas at 34.7%, followed by Diversified Energy Infrastructure at 29.3%, and Liquids Transportation & Storage at 18.1%. It is leveraged at 25.93% and has a low expense ratio of only 0.76%. It pays quarterly dividends.

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