Easy Income Portfolio: December 2024 Update

It was another calm month for the Easy Income portfolio. Some investments went up a little, and some went down a little. We collected dividends along the way. This is exactly what the Easy Income Portfolio is designed to do.

I am pretty sure inflation is going to be sticky.

Energy demand will probably grow, and natural gas demand stands to benefit significantly from that growth.

 It appears very likely that commercial real estate values, especially office properties, are much closer to the end of their decline than the beginning.

I am very bullish on residential mortgages for many economic and technical reasons.

Private credit is projected to grow much quicker than any other fixed-income market segment. The yields are definitely higher than in any other segment of the fixed-income market. That bodes well for business development companies’ long-term performance and dividend streams.

I am a huge fan of closed-end fund discount activism and arbitrage, and Special Purpose Acquisition Company (SPAC) arbitrage. Both are brilliant ways to earn above-average streams of income.

BB-rated bonds and community bank debt are two of the highest-yielding areas of the bond market.

I am very confident that these areas and the other markets we invest in through the Easy Income Portfolio will deliver high-income levels with a respectable total return over the long run.

I have no clue what they will do day to day.

That’s why I organized the portfolio so that there are asset classes that react differently to news and market movements.

If oil prices go up, royalty trusts and MLPs will go up.

 Bond prices are likely to fall.

If the economy is strong, BDCs will fare well.

Mortgage-backed securities may lag due to rising rates in that environment.

If one zigs, I want to also own other assets that zag.

 I want to own a collection of assets and securities, not individual companies. This gives me a high degree of additional diversification.

Almost all of our positions were up this month, but that will not always be the case.

 As long as we focus on owning diversified pools of assets that behave differently from each other, even the bumps in the road will be subdued. The whole idea of the portfolio is to smooth out the ride, collect as much income as possible, and not worry about daily news and fluctuations.

I have no idea how 2025 will play out in the fixed-income, currency, and commodity markets. How high will traffic be, and which countries will be impacted? How will financial markets react to the tariffs? How will the economy respond to proposed immigration changes and possibly widespread government headcount reductions? How high will the dollar go against major foreign currencies, and what will that mean for the economy? Will the Fed cut rates in 2025? How many times? Will the administration’s energy policy be a plus or minus for oil and gas prices? Will office values finally finish bottoming out?

There is only one answer to all of these questions: I do not know. Neither does anyone else. Go back and look at all the highly confident predictions about both economics and markets from years past. Few, if any, come close to hitting the mark. The Easy Income Portfolio gives you the confidence to not worry about all that noise.

We do have a couple of housekeeping items this month:

Tortoise Energy Infrastructure Corp (TYG) is expected to close its merger this month. This is a significant corporate action involving Tortoise Capital Advisors, a specialized investment firm that focuses on energy sector investments. They’re making two major changes to streamline their fund offerings and enhance value for shareholders.

The first key change is a merger between two closed-end funds:

1. Tortoise Midstream Energy Fund NTG
   
2. Tortoise Energy Infrastructure Corp TYG

TYG will be the surviving fund after the merger, creating a larger investment vehicle with approximately $1.1 billion in combined assets under management as of November 29, 2024. This larger size can benefit shareholders through improved economies of scale, which might lead to lower operating costs per share and enhanced market liquidity.

A crucial detail for current NTG shareholders is that their final distribution of $0.53 per share will be paid on December 13, 2024, to shareholders who owned the stock as of December 6, 2024.

For TYG shareholders (and future shareholders after the merger), there are two positive changes to the distribution policy:

1. The frequency changes from quarterly to monthly distributions, which can benefit investors who rely on regular income streams by providing more frequent cash flows.
   
2. The distribution amount is increasing by 40% to $0.365 per share monthly. The first three payments are scheduled for:
   • December 31, 2024 (record date: December 24, 2024)
     
   • January 31, 2025 (record date: January 24, 2025)
     
   • February 28, 2025 (record date: February 21, 2025)

The merger and these changes are scheduled to take effect before market opening on December 23, 2024, assuming all closing conditions are met. After this date, NTG will cease trading, and all positions will be consolidated into TYG.

That’s a huge increase in the expected level of income from this fund. Once the merger officially closes, we will own a small piece of almost every oil and gas infrastructure asset, such as pipelines and terminals, in North America. The yield on that collection of assets will be about 10%.