The markets continued their downward spiral this week, with the S&P down 2.9% and utilities (measured by XLU) down 8.7%, which really surprised me. But energy had a bit of a rebound from the terrible prior week, with XLU (integrated oil) up 2.2%. The midstreams and MLPs I track were up 1.6% in price (1.1% if I weight them for market caps).
With that information, you would expect the utility-heavy funds to have underperformed and the more traditional midstream funds to have done OK. You’d be right about the utility-heavy funds, but not about the others.
The average fund dropped 1.1% in NAV. Most of the drop can be attributed to the 4 First Trust funds (big focus on utilities), and other funds that have moved more towards renewables. For instance, Brookfield Renewable Partners (BEP, which I know nothing about, but I guess it’s into renewables) dropped 10% on the week, and BEP ranks among the top 10 holdings of several funds, so that hurt. The biggest weekly drop, however, was CEN. I mentioned last week that 40% of CEN’s assets are invested in 1 private partnership, and I wondered how frequently CEN updates its estimated value for that investment. Well, I guess they update monthly, and there was a significant mark down of that investment on September 30. CEN’s NAV dropped 6% on the week. I can’t think how that drop all happened in 1 week, so I assume it’s the monthly mark on the private investment that caused most of the damage. And it tells you not to put much faith in CEN’s NAV.
Discounts moved all over the place. The average discount shrunk 1.3% points, but the range was really wide. For instance, CEN’s discount shrunk 6% points, from 18% to 12%, turning its 6% NAV drop into a 1% price increase. FEN’s discount also shrunk 6% points, from a discount of 1% last week to a premium of 5% now. That turned FEN’s 1% drop in NAV into a 5% price increase. FIF, another First Trust fund, saw its discount rise a bit, adding pain to its 3.7% NAV drop; its price dropped 4.2% on the week.
I don’t really follow the First Trust funds, so I don’t understand the difference between FEN and FIF’s performance and discounts. Comparing the 2 funds since 12/31/19 (just before the pandemic), FIF has significantly outperformed FEN on an NAV basis, but FEN trades at a premium to NAV and FIF trades at a discount. Go figure. (BTW, both funds are down in NAV over that period – FIF is down 2.6% and FEN is down 18%. I’m not recommending either fund.) FIF is taxed as a RIC, while FEN is taxed as a C Corporation, if that matters.
In any event, the traditional midstream Clearbridge funds did the best last week in price, up around 3%. FIF and KMF did the worst, down 4% and 3.8%, respectively. The averge fund was up 0.45% in price on the week.
I didn’t see any news items this week of any great importance. A few dividend announcements, but that’s it.