I recently spent time with Peter Guastella, my old pal from our Boy Scout days with Troop One in Flushing, New York. He mentioned a closed end fund that generated income with a yield near 11%. Naturally I wanted to know more. Today I will inspect the details associated with Kayne Anderson Energy Development Co. (KED NYSE). The company is focused on generating income and capital gains through equity and debt investments.
The majority of the assets are invested in private Master Limited Partnerships (MLP) with 88% of total assets committed to the mid-stream energy sector. An MLP is much like the income trusts structure we used to enjoy in Canada until the 2006 Halloween Massacre.
The beauty of the the MLP structure is that it is not a taxable entity. After expenses are paid profits are distributed to unit holders where the income is then taxed.
A probe of the charts will help determine how to proceed with this investment.
The three-year chart is typical of what we have seen in the energy sector as oil prices topped out in 2014. The decision by Saudi Arabia to keep their taps open to squeeze out high cost shale oil producers in the United States and oil sands producers in Canada has put a bad beat on all energy industry participants. The decline took the units from a high over $32.00 in November of 2014 to a low of $9.86 in February of 2016.
The six-month chart highlights the buy signals generated by the MACD and the RSI in February of this year and the sell signals that formed in June. The breach of support along the 50-day moving average in July indicates that we can expect more selling to to take the units to a retest of support along the 200-day moving average near $16.00.
No doubt a yield near 11% is attractive however at this point it would be prudent to wait until the selling dissipates before committing capital.
Next time I’ll audit the charts for Bell Canada Enterprises Inc. (BCE TSX) for Julie.
Make it a profitable day and happy capitalism!