American Gas - May 2014 - (Page 26)

investment review rational exuBerance For investors, the love affair with natural gas continues. But to retain and increase investors' interest, utilities must continue to modernize and expand infrastructure by jeff heilmAn 26 AmericAn GAs may 2014 I f you want to get a sense of the appeal of natural gas to investors, look no further than the Hennessy Gas Utility Index Fund (GASFX). Launched 25 years ago this month and initially sponsored by the American Gas Association's Finance Committee, GASFX started with just $25 million in assets. Today it holds nearly $1.5 billion. "With tremendous growth especially over the past five years, one telling trend is increasing interest not only from traditional income investors but from total-return growth investors as well," says Winsor H. "Skip" Aylesworth, who is the portfolio manager of GASFX at Hennessy Funds, having been only the second portfolio manager of the fund in 2001 while at FBR Fund Advisors. Today the "basic premise" behind investing in gas is clearer than ever, Aylesworth says: It's clean, efficient, affordable, and accessible; huge domestic gas reserves should help keep prices low and stable and ensure supply security; and demand is expected to increase for homes, businesses, manufacturing, power generation, vehicles, and export. But "there is still much work to be done," he adds. Aylesworth and his colleagues on Wall Street point to several things utilities can do to retain and grow the interest of investors, but foremost among them is to modernize and expand infrastructure in order to support the goals of safety and reliability and to meet projected demand. Now is the time to move aggressively toward that goal, they said in interviews with American Gas. Upside Fundamentals "Natural gas is the commodity of choice," says Daniel Fidell, managing director of Houston-based USCA Securities, an equity research firm for institutional investors focused on energy and utility stocks. Fidell cites gas's low pricing, earnings stability, long-horizon supply, and clear advantages over coal, nuclear, and renewable energies. Overall, the gas industry's performance metrics are attractive, Fidell adds. "Along with holding a steady low beta, what we especially like about gas utilities is that their earnings per share and dividend returns, historically between 3 and 5 percent, are now ticking up as high as 5 to 7 percent. This earnings stability and growth, plus historically low prices, half of where they were just five years ago, fortify the rationale for investing in gas."

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American Gas - May 2014