Infrastructure and renewable energy stocks have been hit hard in 2022 and 2023 after doing very well back in 2021. The iShares Global Infrastructure ETF (IGF) is down about 2% year-to-date. The iShares Global Clean Energy ETF (ICLN) is down a whopping 30%.
Aside from a change in market psychology, the sector has been hurt by rising interest rates, since infrastructure and renewable energy companies have large capital expenditure budgets. Higher inflation also drives up the cost of raw materials and labor.
NEP is one of the top ten holdings in the NXG portfolio. In August 2023, NEP reduced its annual unit distribution growth rate target from 12% to 5%-8% through 2026. This caused a big drop in the price of NEP along with a drop in sector leader NEE which owns a large position in NEP.
Despite the recent selloff, many analysts believe that infrastructure and renewable energy stocks may do well going forward. They benefit from a tailwind of powerful long-term trends such as the urbanization of the global population and the transition to clean energy.
NextGen Infrastructure Income Fund
Ticker: (NYSE:NXG)
Inception Date: Sept. 26, 2012
Total Investment Exposure: 136 Million
Total Common Assets: 102 Million
Baseline Expense ratio= 1.92%
Effective Leverage: 25%
Discount= -14.45%
Average 6 Month discount= -18.27%
Annual Distribution Rate (market price) = 19.3%
Current monthly distribution= $0.54
Annual Distribution= $6.48
IRA/401K eligible- no UBTI
Rolling NAV Correlation with GDV= 92%
Rolling NAV Correlation with NFJ= 88%
Rolling NAV Correlation with CII= 91%
The NextGen Infrastructure Income Fund is a closed-end fund that invests equity and debt securities of infrastructure companies. Their portfolio is diversified across a variety of infrastructure sectors, including energy, industrials, technology, and communications.
The fund is designed to take advantage of traditional infrastructure investment characteristics (e.g. lower correlation to broader market, high barriers to entry, business activities that are vital to economy, etc.).
NXG – Sector Exposure
NXG Sector exposure (NXG Web site)
NXG – Top 10 Holdings
NXG Top 10 Holdings (NXG Web Site)
Note that NEP was the largest holding on June 30, 2023. It has taken a big hit since then but seems to have formed a bottom in the low twenties.
NXG – Distributions
On September 1, 2023, NXG announced a 100% increase in the monthly distribution from $0.27 to $0.54. The announced ex-dividend dates and payment dates are listed below:
NXG Distributions (NXG Web Site)
The NXG Board seeks to maintain a more stable monthly distribution per share. Because of the current 19% distribution yield, this means a good portion of future distributions will likely be return of capital.
I believe this higher distribution policy may have been requested by Saba or Bulldog as a way to narrow the discount to NAV which was over 20% in 2022.
NXG – Institutional Ownership
Institutional investors own 34.69% of the shares outstanding as of June 30, 2023. The top institutional investor is Raymond James who owned $5.5 million. These are most likely shares held by financial advisors in managed accounts.
The next two largest holders are activist closed-end fund investors:
- Saba Capital owns $3.875 million
- Bulldog Investors owns $3.392 million
Source: Nasdaq: Stock Market, Data Updates, Reports & News
NXG – Investment Performance NAV Return as of 11/05/2023
YTD – 14.67%
1-Year – 16.79%
3-Year + 5.90% annualized
5-Year – 4.86% annualized
10-Year – 0.22% annualized
The NAV performance has lagged the S&P 500 by a lot in 2023. This is mainly because of the heavy allocation to stocks like NEP which have been out of favor. There is also low exposure to technology stocks.
Note that none of the “Magnificent Seven” technology stocks (AAPL, AMZN, GOOG/GOOGL, META, MSFT, NVDA, TSLA) appear in NXG’s underlying stock portfolio.
NXG – Three Year Discount History
NXG Discount History (cefconnect)
Recent Management Change
On October 9, 2023, John Musgrave was appointed president and CEO of Cushing Asset Management. He was also appointed portfolio manager for NXG. Musgrave joined Cushing in 2007. Before then, he worked in Citigroup’s investing banking division where he focused on corporate finance and M&A in a wide range of industries, including energy infrastructure companies.
Todd Sunderland, the Chief Risk Officer of Cushing, was also appointed as a portfolio manager of the fund.
There were no changes to the investment approach, investment strategy, or investment objectives or policies of the Fund.
Management Fee Waiver
The original management fee for the fund was 1.25% of managed assets. But in May 2023, they introduced a fee waiver of 25 basis points, bringing the fee to 1.00%. But because of other expenses and leverage, the baseline expense ratio was 1.92% not including interest expense.
Summary
Because of its high expenses, I see NXG as more of a swing trading candidate, rather than something you would hold as a long-term buy and hold. Both Saba and Bulldog own stakes in the fund. There was already a big increase in the distribution rate, and there may be additional shareholder-friendly actions taken going forward.
Market Liquidity
NXP is not very liquid and only trades about 19,000 shares a day on average. Care should be taken to use smaller limit orders since the bid-asked spread can be fifteen cents or higher.
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