Go Midstream with MLPs and Pipelines

06/02/2020 5:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

I recommend taking a position in energy services, such as pipelines and storage tanks, also called midstream energy services, explains Bob Carlson, editor of Retirement Watch — and a participating speaker at MoneyShow's Virtual Event on June 10-12.

Midstream energy investments crashed when oil prices plummeted earlier in 2020. Saudi Arabia on one side and Russia and Iran on the other side decided to engage in an oil supply war just as the pandemic was gaining hold.

Unrestrained supply and the sharp decline in demand due to the pandemic response caused a global glut and precipitous decline in oil’s price. All energy-related investments suffered price declines. There also was forced selling by closed-end funds that had to reduce their leverage as prices declined.

Now, the oil producers are more cooperative about trying to restrict supply and increase prices. I think there are bargains in the midstream sector as the energy market returns to equilibrium.

JUNE 10 - 12, 2020

I want to avoid oil producers and distributors. Their profits fluctuate too much with the price of oil. I believe there are market dislocations that create investment opportunities.

The oil glut helps providers of storage tanks and similar services, since oil producers need to store oil they can’t sell. Also, many of the midstream companies are in better financial condition than they were during the 2015 oil price decline.

I recommend Cohen & Steers MLP & Energy Opportunity (MLOAX), an actively managed open-end fund. After the price collapse, the fund began focusing on refinery-linked and storage companies that are the most likely to do well during a downturn.

It also added Canadian companies, as they seem to be more insulated from the global price shock. The fund recently owned 33 positions with about 74% of the fund in the 10 largest positions. Major positions in the fund were Enbridge (ENB), Kinder Morgan (KMI), TC Energy (TRP), Enterprise Products Partners (EPD) and Energy Transfer (ET).

The recent yield was 8.44%. The fund gained 24.8% in the last four weeks. It is down 34.44% for the year to date and 37.27% over 12 months. As with CPXCX, the fund has different share classes. The best class for you depends on the broker you use.

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