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Not Scott: Old_Joe , you can blame this decline on me. Shortly after I increased my holdings of GASFX it started heading to the down side. Sorry ! Derf
Personally, I think this remains one of the more low-key ways to play energy infrastructure (I don't own a fund, I've always been interested in individual names) but as the move in crude shows no signs of really rebounding (and may get worse), pipelines have been drawn into the decline. There is also likely concern over the possibility of higher interest rates.
There's no bigger example than Kinder Morgan, the previously much-beloved pipeline co that has come down considerably. I think people are looking at Kinder and the concerns over that company (whose publicly traded warrants have gone from $5.40 in April to 25 cents) and taking that - to some degree - as a sign of distress across the whole industry, when I don't believe that's warranted. While there are concerns beyond Kinder, the recent moves lower in Kinder (including the recent need to issue convertible pfds that yield 9.75%, as well as the move a couple of days ago to increase their investment in a struggling pipeline that resulted in their being put on negative credit watch by Moody's - if Kinder's credit rating goes to junk, that's a real problem) seem to take the sector lower with it.
Elsewhere, Energy Transfer (ETE) is in the midst of buying Williams (WMB) and that will soon become the largest energy infrastructure play in the US (and perhaps the world), moving past Kinder.
Lastly, the other concern - although not a major one at this point - is the idea that f things do get worse, producers may try to push for renegotiation of fees with transport cos. At this point, the only notable case of that is Chesapeake and Williams. I'm not really concerned about that in terms of pipelines, especially with major players. I do think though, if you look at other aspects of the industry, this downturn has revealed that things thought safe-ish because of things like "take or pay" contracts can change quick - a big example of that are the frac sand companies. Hi Crush literally states on its front page, "Substantially all of our frac sand production is sold to leading investment grade-rated pressure pumping service providers under long-term, take-or-pay contracts that require our customers to pay a specified price for a specified volume of frac sand each month." Doesn't matter, stock has literally gone from $70 in the Summer of 2014 to $7 and just dropped the distribution.
That said, I don't see it going to zero and things like that are examples of energy-related plays that will eventually recover. However, the recovery won't happen tomorrow and it becomes one's time horizon and risk tolerance. How long is one willing to wait? The "willing to wait" part is understandably going to vary by the person and the investment. I don't know if I'm willing to wait for a frac sand play to recover, but I'm more than willing to wait for a massive pipeline company that basically provides energy to a huge portion of the country. While I haven't invested in anything Kinder Morgan-related since Kinder Morgan Partners was bought, when you have a company that moves about 33% of the US nat gas demand, at some point/price, I may consider that (although I'd probably look at the convertible preferred.) I am considering adding to current pipeline plays. Again though, it becomes what is one's time horizon and interest and understandably, that's going to vary from person-to-person. I really like owning what I consider vital infrastructure - pipelines, railroads, even financial infrastructure (ICE, CME) and really just see these plays as long-term holdings that will have their ups and downs over time.
Broadly though, the pipelines will recover when energy does. I have not sold my pipeline co's and don't plan to. If anything, I've thought about adding at these levels and simply continuing to reinvest. I don't really think about these holdings, I guess from the standpoint of their inevitable need as vital infrastructure. With further regulation highly likely, it is almost certain that the larger of these companies will retain a wide moat.
Please let me know if anyone wants to double down on GASFX. My bad luck with sector funds is so excellent, and because I love you all so much, I can help you out buying a smidgen in my IRA if possible. I will go down another 10-20℅ easy.
"Substantially all of our frac sand production is sold to leading investment grade-rated pressure pumping service providers under long-term, take-or-pay contracts that require our customers to pay a specified price for a specified volume of frac sand each month." Doesn't matter, stock has literally gone from $70 in the Summer of 2014 to $7 and just dropped the distribution. Can someone fill in the blank(s) for me. Was this due to stock over pricing or customers in bankruptcy?
FWIW - I too believe that the pipeline companies will recover when energy does. That may be an unexpected event such as the Saudi's suddenly deciding that they need more $$/barrel or similar. In any case I don't expect that the world's appetite for oil is going to be diminished anytime soon.
As for natural gas, well it's been in a funk for quite some time now but companies have been building LNG facilities for export which I believe many have ignored or simply not considered. KMI recently took over the pipes heading into Mexico which as of yet has not been reflected in their valuation. Sooner or later.....
Comments
Derf
There's no bigger example than Kinder Morgan, the previously much-beloved pipeline co that has come down considerably. I think people are looking at Kinder and the concerns over that company (whose publicly traded warrants have gone from $5.40 in April to 25 cents) and taking that - to some degree - as a sign of distress across the whole industry, when I don't believe that's warranted. While there are concerns beyond Kinder, the recent moves lower in Kinder (including the recent need to issue convertible pfds that yield 9.75%, as well as the move a couple of days ago to increase their investment in a struggling pipeline that resulted in their being put on negative credit watch by Moody's - if Kinder's credit rating goes to junk, that's a real problem) seem to take the sector lower with it.
Elsewhere, Energy Transfer (ETE) is in the midst of buying Williams (WMB) and that will soon become the largest energy infrastructure play in the US (and perhaps the world), moving past Kinder.
Lastly, the other concern - although not a major one at this point - is the idea that f things do get worse, producers may try to push for renegotiation of fees with transport cos. At this point, the only notable case of that is Chesapeake and Williams. I'm not really concerned about that in terms of pipelines, especially with major players. I do think though, if you look at other aspects of the industry, this downturn has revealed that things thought safe-ish because of things like "take or pay" contracts can change quick - a big example of that are the frac sand companies. Hi Crush literally states on its front page, "Substantially all of our frac sand production is sold to leading investment grade-rated pressure pumping service providers under long-term, take-or-pay contracts that require our customers to pay a specified price for a specified volume of frac sand each month." Doesn't matter, stock has literally gone from $70 in the Summer of 2014 to $7 and just dropped the distribution.
That said, I don't see it going to zero and things like that are examples of energy-related plays that will eventually recover. However, the recovery won't happen tomorrow and it becomes one's time horizon and risk tolerance. How long is one willing to wait? The "willing to wait" part is understandably going to vary by the person and the investment. I don't know if I'm willing to wait for a frac sand play to recover, but I'm more than willing to wait for a massive pipeline company that basically provides energy to a huge portion of the country. While I haven't invested in anything Kinder Morgan-related since Kinder Morgan Partners was bought, when you have a company that moves about 33% of the US nat gas demand, at some point/price, I may consider that (although I'd probably look at the convertible preferred.) I am considering adding to current pipeline plays. Again though, it becomes what is one's time horizon and interest and understandably, that's going to vary from person-to-person. I really like owning what I consider vital infrastructure - pipelines, railroads, even financial infrastructure (ICE, CME) and really just see these plays as long-term holdings that will have their ups and downs over time.
Broadly though, the pipelines will recover when energy does. I have not sold my pipeline co's and don't plan to. If anything, I've thought about adding at these levels and simply continuing to reinvest. I don't really think about these holdings, I guess from the standpoint of their inevitable need as vital infrastructure. With further regulation highly likely, it is almost certain that the larger of these companies will retain a wide moat.
Can someone fill in the blank(s) for me. Was this due to stock over pricing or customers in bankruptcy?
@Scott- thanks- that's pretty much my feeling also. I also think that natural gas is more likely to increase usage than oil, over the long haul.
As for natural gas, well it's been in a funk for quite some time now but companies have been building LNG facilities for export which I believe many have ignored or simply not considered. KMI recently took over the pipes heading into Mexico which as of yet has not been reflected in their valuation. Sooner or later.....
I'm not ready to buy Healthcare funds since they are at their highs. That wouldn't do much for you anyways.