A Sneaky Way to Own The Best Energy Stocks

[A Sneaky Way to Own The Best Energy Stocks](#) Tax efficiency mixed with value creates a win-win for energy investors Garrett {NAME} OCT 9 [Icon]( [Icon]( [Icon]([Icon]( Market Update: Liquidity is rising, and tech stocks are chugging higher ahead of Friday's bank earnings reports. All boats continue to lift higher. ------------------------------------------------------------------------------- Dear Fellow Expat: Ever felt like you're decoding ancient hieroglyphs while juggling flaming torches? That’s how one investor described the world of Master Limited Partnerships (MLPs) and their notorious sidekick: the K-1 form. Now, as I’ve said… if I like a company… [I’ll figure out the tax implications.]( But some people aren’t willing to deal with it. And I hear the horror stories. [undefined] You invest in an MLP, dreaming of sweet distributions. But come tax time, BAM! The K-1 crashes your party like an uninvited guest with a 500-page autobiography. These tax documents report your slice of the MLP pie – income, deductions, credits – in a dizzying dance of numbers that'll make your head spin like a roulette wheel. Why are they so complex? First… remember that tax preparation is a racket. We could just have a simpler tax code, but what are 672,000 CPAs going to do without work? Chop lumber? Second, MLPs are partnerships, not corporations. You're not just a shareholder; you're a partner! Sounds fancy until you're hunting down delayed K-1s to beat the April or October filing deadline. This process could require contacting investor relations… fact-checking your K-1 document… making revisions… and even delaying your filings. So… if you’re not willing to take that sort of risk (even if it’s small), you can move onto calmer waters and explore what’s known as a closed-end fund. A closed… a what? I’ll get to it. But here’s the promise: Same great MLP exposure, none of the paperwork panic! Using Closed-End Funds Around MLPs Closed-end funds (CEFs) are your potential escape hatch from the K-1 maze of Master Limited Partnerships (MLPs). CEFs are investment vehicles that raise a fixed amount of capital through an IPO and trade on exchanges like stocks. Unlike mutual funds or ETFs, CEFs don't create or redeem shares based on investor demand. This unique structure leads to an intriguing phenomenon: CEFs can trade at prices different from their asset value. Here's the deal: - Premium: When a CEF's market price exceeds its Net Asset Value (NAV), investors pay more than the fund's assets are worth. So, you might be paying $12 for a $10 bill, but the investors believe the underlying asset prices will rise to meet that premium. This was prevalent over the last year with funds built around the utilities sector (the top performer of the last six months). - Discount: When a CEF's market price is below its NAV. You're getting the fund's assets at a bargain. You can benefit because sometimes activist investors like Bulldog Advisors demand that the fund manager increase shareholder value. This can include buying back stock, increasing the distribution, or reallocating to other assets. This can reduce the NAV. These premiums or discounts can fluctuate based on investor sentiment, market conditions, and the fund's performance. It's a dynamic that creates both opportunities and risks for savvy investors. MLPs and CEFs Why consider CEFs for MLP exposure? Simple. You get similar investment exposure without the headache of K-1 forms. No more waiting anxiously for tax documents or grappling with complex partnership income reporting. CEFs offer a streamlined alternative to direct MLP investment. You trade some of the tax advantages of MLPs for simplicity and liquidity. Those tradeoffs include the loss of the pass-through provision, depreciation deductions, and tax-deferred distributions. It's a tradeoff that some find worthwhile, especially come tax season. An Example In the past, we’d talked about Tortoise Pipeline Fund (TTP), which was one of our favorite CEFs. We’d recommended it in December 2022 at $26.02 per share. Since then, it’s up 68%, and will convert to an ETF. Now, we have our eye on the ClearBridge Energy Midstream Opportunity Fund (EMO). This is another solid option worth considering. Notably, it’s one of Boaz Weinstein’s targets, which could give it an edge for some investors. EMO focuses on a mix of energy midstream companies, blending partnerships and corporations while keeping a close eye on assets with stable cash flows and low exposure to direct commodity price swings. It owns top-tier MLPs and midstream assets like Energy Transfer LP, Targa Resources, ONEOK Inc, Western Midstream Partners LP, MPLX LP Partnership Units, and Enterprise Products Partners LP EMO offers a distribution rate that currently outpaces NTG, with a 9.29% yield at its market price. Like NTG, it holds many of the same big pipeline players we like. Still, it might be a better fit for those specifically looking for high distributions without heavy exposure to commodity price volatility. Not the discount to NAV. - Market Price: $42.63 - NAV: $48.27 - Discount to NAV: 11.68% - Total Assets: $860 million ([current holdings]() - Distribution: 8.20% - Distribution Frequency: Quarterly - Management Fee: 1.47% You’ll want to deduct the management fee from the distribution to get the true yield (around 6.5%). This offers a more diverse portfolio instead of a single-stock emphasis. Remember - you’re not focused on [a short-term trade]( here. You want to build wealth over time, get past the 12-month tax threshold, dividend reinvest, and enjoy [all the benefits of great companies]( in one of our favorite sectors. Okay… I’m off to look at insider buying patterns… Stay positive, Garrett {NAME} [Icon]( [Icon]( [Icon]( [Logo Image](#) Postcards from the Republic 1125 N. Charles St. Baltimore, MD 21202 This email was sent to you because you subscribed to this publication via FinPub. To stop receiving these emails from Postcards from the Republic, Please click [unsubscribe](. © 2024 Postcards from the Republic, All Rights Reserved. Any reproduction, copying, or distribution, in whole or in part, is prohibited without permission from the publisher. Financial Disclaimer: Nothing in this email should be considered personalized financial advice. Do not consider any communication between you and Renewaltest and its employees or writers as financial advice. 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