ET - EMO: Very Strong Recent Performance But Higher Risks Than Peers

2024-04-22 09:28:16 ET

Summary

• The ClearBridge Energy Midstream Opportunity Fund offers a tax-advantaged way for investors to include midstream master limited partnerships in their retirement accounts.
• The fund has a lower yield compared to its peers but has delivered strong price performance, beating the S&P 500 Index and its peers.
• The fund's distribution history shows a steady reduction in distributions, but it has been slowly increasing its distribution since the COVID-19 pandemic.
• The fund's shares have been outperforming its portfolio recently, which could represent a risk to investors.
• The fund is still trading at a discount to net asset value, however, and it did manage to cover its distribution during the most recent fiscal year.

The ClearBridge Energy Midstream Opportunity Fund ( EMO ) is a closed-end fund that provides an easy way for investors to include midstream master limited partnerships into a tax-advantaged retirement account or something similar without having to deal with the potential tax consequences of doing so. This is because the fund is structured as a corporation, so it handles all the tax issues on the fund level. From the perspective of a retail investor, it is exactly the same as if you purchased any other C-corporation. This is likely to be an attractive proposition to many income investors and retirees, since most master limited partnerships have very high distribution yields that are supported by stable cash flows. The ClearBridge Energy Midstream Opportunity Fund is able to pass through the high yield that it receives from its holdings, as the fund yields 6.65% at the current price. This is very attractive compared to most other things in the market today, but admittedly, it is not as good as the Alerian MLP Index ( AMLP ) or many of the fund’s peers. This can be seen here:

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