In managing the Fund’s portfolio, the Fund’s manager, Energy Income Partners, LLC, (“EIP”) intends to concentrate the equity portion of the portfolio on steady fee-for-service businesses in energy infrastructure such as
These infrastructure businesses receive fees and tariffs, which are generally not directly related to commodity prices and therefore tend to be less cyclical. EIP typically seeks to limit the Fund’s exposure to Energy Companies that derive a significant portion of their revenues from more cyclical businesses, and has the ability to hedge cyclical exposure through short positions. The Fund may also invest in a portfolio of obligations of the U.S. government and its agencies and investment-grade corporate bonds.
The Fund typically uses leverage for any purpose consistent with its investment objective, including an attempt to enhance returns. Leverage may be achieved by taking a short position in debt obligations of the US Government and investment grade corporate bonds or through the use of swaps. The combination of this diversified portfolio of energy infrastructure equities and short duration investment grade bonds along with the use of leverage through short positions and derivatives should provide additional flexibility in portfolio construction.
EIP differentiates itself from other Energy Industry asset managers due to its focus on Regulatory Asset Base (RAB) and fee-for-service businesses. A RAB business is granted an “allowed” rate of return. The company’s profit is essentially this allowed rate of return multiplied by the invested capital (the regulatory asset base). The company’s revenue is equal to this allowed profit plus the cost of operating the business, which is why it is also referred to as a “cost of service” pricing scheme. This revenue divided by the units sold is what the customers pay for their water, electricity or gas. This is why these businesses are less subject to the vagaries of the economy, labor costs, weather, or commodity prices. In North America, RAB and fee-for-service businesses today are primarily electricity transmission and distribution (poles & wires) and petroleum and natural gas transmission, storage and distribution (pipes & tanks). The fund is concentrated on companies run by management teams that like the utility model, like the stable cash flows they have been known to generate, and organize themselves as a listed company that pays out the majority of its earnings in the form of a regular dividend.