Gas Utility Fund Investment Strategy

Portfolio Manager Ryan Kelley describes the Fund's investment strategy, which focuses on the distribution of natural gas by owning publicly traded members of the American Gas Association.

May 2017

  • Ryan C. Kelley
    Ryan C. Kelley, CFA
    Portfolio Manager
 

Ryan Kelley: The Hennessy Gas Utility Fund is invested in the distribution side of natural gas. We think this is where there's great opportunity for investors. With an abundant supply in the United States, low and competitive pricing, and we believe that the use of natural gas will increase over time, and this also helps the companies that are in the Fund.

Portfolio Selection

The portfolio holdings are the same as the AGA Stock Index. The AGA is the American Gas Association, and it’s a trade organization which represents natural gas distribution companies in Washington D.C. The objective is to replicate the AGA Stock Index, so essentially own the same companies and the same percentage holdings as the Index.

Portfolio Components

There are three major buckets in the portfolio. The first is about 50% of the portfolio, and these are diversified utilities which have electricity generation, distribution, natural gas distribution. The second part is about 25% of the portfolio, and these are local distribution companies. The third part is also about 25% of the portfolio, and these are major interstate pipelines, which move natural gas between states as well as into Mexico or Canada. The first two parts of the portfolio typically grow at a slow and steady pace, and they increase dividends yearly. The last part of the portfolio is a bit more volatile, but it has added nicely to performance over time.

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Hennessy Funds
7250 Redwood Boulevard, Suite 200
 Novato, CA 94945

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Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted and can be found here. Neither forward earnings nor earnings growth is a measure of a fund’s future performance.

Mutual fund investing involves risk. Principal loss is possible. Small and medium-capitalization companies may have more limited liquidity and greater price volatility than large-capitalization companies. Investments in foreign securities may involve greater volatility and political, economic, and currency risk and differences in accounting methods. The Focus, Total Return, Balanced, Large Cap Financial, Small Cap Financial, and BP Midstream Funds are considered non-diversified funds. A non-diversified fund, which may concentrate its assets in fewer individual holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. A fund that concentrates its investments within one country, one sector, or a small group of industries, such as Japan, Technology, Financials, or Energy, may be subject to a higher degree of risk. Investments in debt securities typically decrease in value when interest rates rise. The risk is greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that the borrower will prepay some or all of the principal owed to the issuer. Funds that invest in pooled investment vehicles (including ETFs) may experience higher fees. The formula-based strategy employed by some Funds may cause those Funds to buy or sell securities at times when it may not be advantageous.

Master Limited Partnerships (MLPs) and MLP investments have unique characteristics. A Fund does not receive the same tax benefits as a direct investment in an MLP.

The prices of MLP units may fluctuate abruptly and trading volume may be low, making it difficult for a Fund to sell its units at a favorable price. MLP general partners have the power to take actions that adversely affect the interests of unit holders. Most MLPs do not pay U.S. federal income tax at the partnership level, but an adverse change in tax laws could result in MLPs being treated as corporations for federal income tax purposes, which could reduce or eliminate distributions paid by MLPs to the Fund. If the BP Energy Fund’s MLP investments exceed 25% of its assets, it may not qualify for treatment as a regulated investment company (“RIC”) under the Internal Revenue Code (“Code”), and the Fund would be taxed as an ordinary corporation, which could substantially reduce its net assets and its distributions to shareholders. The BP Midstream Fund is treated as a regular corporation, or “C” corporation, for U.S. federal income tax purposes, and therefore, is subject to U.S. federal income tax on its taxable income at the graduated rates applicable to corporations (currently a maximum rate of 21%) as well as state and local income taxes. The BP Midstream Fund will not benefit from current favorable federal income tax rates on long-term capital gains, and Fund income and losses will not be passed on to shareholders. The BP Midstream Fund accrues deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV, and as a result, the Fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

Glossary of Terms contains definitions and additional information.

To view the top 10 holdings of a Fund, please click the Fund name: Cornerstone Growth, Focus, Cornerstone Mid Cap 30, Cornerstone Large Growth, Cornerstone Value, Total Return, Equity and Income, Balanced, BP Energy, BP Midstream, Gas Utility, Japan, Japan Small Cap, Large Cap Financial, Small Cap Financial, Technology. Fund holdings are subject to change and not recommendations to buy or sell any security.

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

To view the Morningstar ratings for the Japan Fund, please click here. (Media - TD Ameritrade) JPSIX received Overall Morningstar rating of 5 Stars based on risk-adjusted returns among 42 Japan Stock funds, as of 6/30/19.

To view the Morningstar ratings, please click here.

The Hennessy Funds are offered only to United States residents, and information on this web site is intended only for such persons. Nothing on this web site should be considered a solicitation to buy or an offer to sell shares of any Hennessy Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.

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