Tortoise Energy Infrastructure
Tortoise Energy Infrastructure
Tortoise Energy Infrastructure (TYG) is a closed-end fund that invests primarily in publicly traded master limited partnerships in the energy infrastructure sector. The fund typically holds at least 90% of total assets (including assets obtained through leverage) in securities of energy infrastructure companies and invests at least 70% of total assets in equity securities of Master Limited Partnerships (MLPs). MLPs are publicly traded partnerships that invest in energy related infrastructure, such as pipelines and other hard assets that transport or handle natural resources. The partnership structure has tax benefits; the absence of corporate taxes allows MLPs to distribute more income to unitholders, and investors’ demand for such higher yielding equities in turn allows MLPs to enjoy a lower cost of capital.
Investing in a closed-end fund allows investors the similar yield benefit as direct investments in MLPs, while offering the protection of diversification. The Tortoise Energy Infrastructure was the first closed-end MLP fund to come to the market in 2004. Its management team focuses on four investment strategies: diversification, high yield, growth, and quality. Typically, the fund invests in midstream (pipeline) operations which produce steady cash flow and are not affected by commodity pricing or the risks involved in exploration of new sources. Midstream MLPs generate income according to the volume of oil or gas processed, stored or transported, and hence grow revenue in line with the economy and change in demand.
The advantage of owning TYG is it dispels the tax confusion surrounding MLPs and allows the investors to receive a 1099 instead of a K-1 statement. Closed-end funds can trade at a premium or discount to their net asset value (NAV). Currently TYG’s share price is trading at a 12% premium, compared to a historical range of 12%-16% premium under normal conditions. Management fee is reasonable at 0.95%. With about $1.6 billion in total assets, the fund’s current dividend yield is about 5.4%, making it an attractive investment alternative to bonds. The fund’s share price performance should also be less sensitive to interest rate increases than bonds given the fact that MLPs’ revenue stream is not tied to the credit markets.
Portfolio Management:
Tortoise Capital Advisors, LLC was founded in 2002 by five managing directors who have over two decades of experience in the MLP industry. The company launched its first MLP fund; TYG, in 2004 led by David Schulte, and now has six publicly-traded closed-end funds in the midstream oil and gas pipeline industry. As of December 31, 2010, the company’s managing directors and directors had approximately $6.9 million invested in its own funds.
