NEW YORK (TheStreet) -- Investors seeking smoother returns from the volatile energy market may want to try the natural gas pipelines held in the Tortoise MLP Fund (NTG) - Get Report, says Jeff Fulmer, senior adviser to the fund.
The $1.4 billion closed-end fund, which has recently been trading at a 1% premium to its net asset value (NAV), has seen its price rise 5% this year. The NAV of the fund has fallen 4.6% over the same period. The Tortoise MLP fund operates with a 24% leverage rate to generate an annual distribution rate of 6.4%. As of the end of April, the fund's largest holdings were
Energy Transfer Partners LP
Williams Partners LP
Energy has seesawed this year, with the S&P 500 Oil and Gas Exploration and Production falling 9% in the past two months. The broader S&P 500 Index has fallen 3.3% in the same span.
Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
Why should somebody invest in the Tortoise MLP Fund?
This particular fund focuses on master limited partnerships and, in particular, those that are focused on the natural gas infrastructure build-out. By investing in this fund, you are getting a tremendous experience with high yield and growth, and therefore a nice total return.
What's the biggest constraint for natural gas prices?
There is an abundance of natural gas. Natural gas is a domestic commodity as opposed to a global commodity. Natural gas does not care what is going on on the northern rim of the Sahara or in the Middle East. Natural gas is homegrown on the North American continent and our infrastructure taps into it and provides access to it.
What is so attractive about the pipeline MLPs?
It's the assets themselves. Those are long-term assets with very long economic lives. They are tied to long-term contracts of, generally, five to 20 years. And so you have got this transparency and perspective over what the cash flows associated with those pipelines are going to be. And those pipeline cash flows through an MLP structure find their way right into an investor's portfolio.
There is a big debate over the safety of a drilling process called "fracking." How will this affect the industry and, in turn, your fund?
Fortunately, we don't invest in the companies that drill for and produce oil and gas. That's a phenomenon that is affecting those companies. Our portfolio companies are only in the business of moving oil and gas around the continent. So whether that oil comes from Saudi Arabia or Nigeria, or whether it comes from North Dakota, these are the companies that are benefitting from those tariffs.
How would a big drop in oil prices affect your fund?
Since the pipelines are only in the business of transporting the commodities, they don't take title to them. So whether oil is selling for $120 or $20 a barrel, it does not matter to us. One of the analogies we like to use is this: Picture going through an energy tollbooth, much like a tollbooth on a highway. Whether you are driving a Bentley or a Buick, it does not matter because you are going to be paying the same tariff. And that's where the cash flows from these master limited partnerships are being derived from.
-- Reported by Gregg Greenberg in New York.
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