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A small closed-end fund you likely have never heard of is beating the popular SPDR S&P 500 (SPY), Schwab US Dividend Equity (SCHD), and Invesco QQQ (QQQ) this year.
It is doing this while investing in some of the most boring assets in the United States and trading at a 3.50% discount to its net asset value (NAV). It also has a higher expense ratio of 5.65%, which is higher than most these funds.
The ClearBridge MLP and Midstream Fund (CEM) is a leading closed-end fund (CEF) that invests in MLP companies that run pipelines in the US.
CEM has invested in 22 companies with the biggest ones being Oneok, Energy Transfer, Targa Resources, Williams, and MPLX. It has also invested in other MLP companies like Energy Transfer, Enterprise Products Partners, and Enbridge.
MLPs like Energy Transfer and Enterprise Products Partners are infrastructure companies in activities like transport, gathering and processing, and storage. These are firms that move most of the crude oil, natural gas, and other energy-related liquids.
The fund has also invested in the JPMorgan US Treasuries, which account for about 16.3% of the fund.
In the past three years, the fund has had total returns of 85%, which is higher than the SPY, QQQ, and SCHD’s 33%, 40%, and 10.59%. The same trend has happened this year as it jumped by 24% while the other three have risen by 14%, 15%, and 1.7%.
MLPs are companies known for generating substantial payouts to investors. Energy Transfer has a dividend yield of about 8.1% while EPD has a yield of abot 7.25%. Similarly, Oneok yields 5% while Enbridge has 7.50%.
Unlike other companies, MLPs have better tax advantages because they operate as partnerships. This means that they have pass-through taxation laws, which helps them to avoid corporate taxes. Also, their distributions are considered a return on capital and nor a taxable income, which reduces costs.
However, the CEM Fund is going through a transition phase. Starting in May, the fund started a tender offer of up to 50% of its outstanding shares, which will expire on June 20th. The fund will also merge with the ClearBridge Energy Midstream Opportunity Fund (EMO), its sister fund that has also done well.
CEM vs SPY vs QQQ vs EMO 3-year performance
EMO’s fund has soared by almost 26% this year while CEM is up by 23.50%. It has also jumped by over 107% in the past three years, beating the CEM fund, which has jumped by 85% in the past three years.
The post The boring CEM fund is beating SPY, SCHD, QQQ ETFs in 2024 appeared first on Invezz
