Investment conferences over the past several years predictably feature speakers waxing about the shale oil revolution as the biggest, if not only, bright spot in an economic landscape darkened by an economic “recovery” that never seems to gain its footing.
So on cue, Michael Underhill of Capital Innovations made sure the rollout of his new energy infrastructure fund would coincide with this week’s Morningstar Investment Conference.
Underhill’s message: the surge in oil and gas production that has fostered predictions of U.S. energy independence by 2030 is bigger than you think; indeed, some sources are now forecasting achievement of energy independence as early as 2018-’19.
“An estimated $641 billion worth of energy infrastructure assets will be built over the next 22 years,” he tells ThinkAdvisor in an interview.
His Vertical Capital Innovations MLP Energy Fund (VMLPX) aims to claim a piece of that growth by investing in midstream master limited partnerships involved in the gathering, processing, storing, transporting and marketing of natural gas, natural gas liquids and crude oil.
It’s not just growth opportunities that make the timing for such a fund favorable, but rather current economic and monetary trends — specifically, the Federal Reserve’s plans to taper its asset purchases — that should benefit income investors as well.
“The Fed is actually talking — this week — about how the U.S. economy is approaching its targets on employment, GDP growth and fundamental economic indicators that indicate health of the U.S. economy,” he says.
“The current period is similar to 1993 and 1994, the last time the Fed meaningfully raised rates,” Underhill adds. “At that time period, energy produced some of the most amazing returns; energy in particular does well in a rising rate environment and works well as an inflationary hedge.”
The growth and income two-fer, along with a fund structure that Underhill calls “tax-aware” and that avoids the risks of exchange-traded notes — uncollateralized debt instruments that take on the credit risk of the issuer — are some of the points the VMLPX portfolio manager is pitching at Morningstar.
But the core case for the fund rests on its holdings’ “monopoly-like characteristics.”