The fund's assets are split between MLPs and midstream corporations providing investors with a balance between the benefits and drawbacks of each. Midstream companies are likely to deliver growth over the next two decades as the United States emerges as an energy Kayne Anderson Mlp Investment Company Kyn power.
What Is Prospectus In Company Law fund's yield is a bit lower than some of its competitors which reduces its appeal in my eyes. One of the best asset classes for income-focused investors is midstream master limited partnerships.
In addition, these distributions impart certain tax benefits to their recipients that corporate dividends do not have. This has resulted in them being a rather unloved sector of the market so these companies have not seen the same degree of capital appreciation as other assets but this same phenomenon has also given many of these companies very high distribution yields.
Although, as already mentioned, tax laws make it difficult Murfreesboro Water Company include these companies in a fund, there are a few specialty ones that are able to do it. This is not an uncommon objective for a closed-end fund, although many of them do state that they are actively pursuing current income. Current income is a component of total return along with capital gains though so there is no real difference here.
The thing that sets this fund apart from many others is the method that it used to achieve this total return. For the purposes of this fund, a midstream company is one that engages in the gathering, transporting, processing, storing, refining, distributing, mining, or marketing of natural gas, natural gas liquids, crude oil, refined petroleum products, or coal.
Regular readers of my work will notice that these companies are ones that I regularly discuss in this column thus some of you may already be familiar with the way these businesses work. Anyone that is familiar with the sector will undoubtedly recognize many of the fund's largest holdings.
Here they are:. Source: Kayne Anderson Fund Advisors. Thus, some investors will likely take some comfort in the fact that it will be easier to get information on them than if the firm were invested in smaller partnerships.
This is one reason why one might choose to invest in a professionally-managed fund to gain exposure to the sector. This is because this is approximately the level at which a position begins to expose the broader fund to idiosyncratic risk. Idiosyncratic, or company-specific, risk is that risk which any financial asset possesses that is independent of the market as a whole.
This is the risk that we aim to eliminate through diversification but if an asset accounts for too heavy of a Yancey Company in the portfolio then this risk will not be completely diversified away. Thus, the concern is that some event will occur that causes the price of a given asset to decline when the market as a whole does not and if this asset accounts for too much of the portfolio then it will drag the entire fund down with it.
While all of these companies are among the largest in the midstream space and thus are rather stable entities, it is still important to keep in mind that there is some risk here. Potential investors in the fund should therefore be sure that they are comfortable taking on the risks of these companies individually before making a purchase of the fund.
The name of the fund and even the investment objective would make one think that it is invested nearly entirely in midstream master limited partnerships. While these entities do account for the majority of the fund's assets, it is far from being the sole asset type in the fund.
We can see this here:. This may or may not come as a surprise when we consider that three of the companies in the top ten holdings list are structured as corporations. While the overall business model - basically charging a contractually-determined fee based on the volume of resources moving through its infrastructure - are the same between the two types of companies, there are some significant differences between them.
For starters, corporations are subject to corporate taxes while partnerships are pass-through entities that are not subject to taxation on a company level.
As KYN has its assets roughly split between the two types of companies, it appears to offer a reasonable balance between the benefits and drawbacks of each type of firm. Midstream companies have a great deal to offer for investors interested in both growth and income.
The general business model is much like a toll Kayne Anderson Mlp Investment Company Kyn in that the midstream company charges the customer a fee for each unit of resources moving through its infrastructure. In Kayne Anderson Mlp Investment Company Kyn to this, the contracts stipulate that the customer must send a certain quantity of resources through the infrastructure or pay for that volume anyway.
This provides the midstream company with a contractually-guaranteed cash flow base to support the distribution that it pays out to investors. One of the biggest stories in the American energy space over the past decade or so has been the surge in energy resource production driven by advancements in shale drilling technology. Source: Energy Information Administration. Of course, all of this incremental production means nothing if the upstream companies cannot get it to the market to be sold.
This is where a midstream company comes in as these are the firms that provide this transportation. As these companies largely make their money based on volumes, we might expect the midstream industry to have also delivered growth over the past ten years.
This has indeed been the case as anyone that follows the sector can attest to. The source of this forward growth will come from rising natural gas exports. As we can see here, global demand for natural gas is expected to grow over the next twenty years as nations around the world seek to meet their rising energy demand with cleaner-burning sources of fuel than coal and oil:.
The United States is one of the few areas of the world that has sufficient untapped reserves to increase its production to meet this demand growth. This is one of the reasons why we have seen the industry commission new LNG plants at such a high rate. The midstream companies that KYN invests in will also benefit from this as they operate the infrastructure that will carry the resources from the fields where they are produced to the export facilities, which are largely Ars Collection Company along the Gulf Coast.
In fact, many of these midstream companies have already begun constructing the infrastructure that will carry this new natural gas and other products bound for export markets. One thing that may concern potential investors in the Good Luck Oil Company is that a sizable Nena And Company of these distributions are classified as return of capital.
Source: Fidelity Investments. The reason why this may be concerning is that a return of capital distribution can be a sign that the fund is not generating enough money off of its investments to cover its distribution and thus may be returning the investors' own money back to them. Obviously, such a scenario is unsustainable over any kind of extended period.
There are, however, other things that can cause a distribution to be classified as return of capital. One of these things is distributing money that the fund receives from master limited partnerships. As the fund invests heavily in these companies, we can clearly see the source of these return of capital distributions.
As is always the case, it is critical for us to ensure that we do not overpay for any asset in our portfolios. This is because overpaying for any asset is a surefire way to generate sub-optimal returns off of that asset. In the case of a closed-end fund like KYN, the usual way to value it is by looking at a metric known as net asset value. A fund's net asset value is the total current market value of all of the fund's assets minus any outstanding debt.
It is therefore the amount that the fund's investors would receive if it were immediately shut down and liquidated. Ideally, we want to purchase shares of a fund when we can get them at a price that is less than net asset value. This is because this scenario essentially means that we are acquiring Kayne Anderson Mlp Investment Company Kyn assets of the fund for less than they are actually worth.
Fortunately, that is Student Housing Company Nottingham case right now. Romer Beverage Company represents a 6. However, I see little reason to favor this fund over other midstream funds like the two First Trust funds that boast much higher yields and trade at a similar discount. Overall, I do believe that all investors should have some Kayne Anderson Mlp Investment Company Kyn to the midstream sector so it is a good idea to research potential ways to do it.
We are currently offering a two-week free trial for the service, so check us out! I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I am long FEN, which is one of the First Trust funds that I mention but it is not directly named in this article.
Midstream MLPs are an excellent asset class for income investors that few have much exposure to. KYN is one of the few closed-end funds offering exposure to this sector.
Kayne Anderson MLP / Midstream Investment Company. Overview Objective. KYN is a non-diversified, closed-end fund with an investment objective to obtain a high after-tax total return for its shareholders by investing at least 85% of our total assets in energy-related master limited partnerships and their affiliates (“MLPs”) and in other ...…
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