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Skip Aylesworth head shot

Q&As and Interviews

Q&A With Hennessy Gas Utility Fund Portfolio Manager Skip Aylesworth

Shauna O'Brien Mar 19, 2015



Insights From Skip Aylesworth


Skip Aylesworth: We do not take into account the dividend yield when choosing holdings for the Fund. However, we do benefit from owning many dividend yielding stocks with 60 of our 62 holdings paying regular dividends. The Fund itself pays a quarterly dividend to shareholders with historical yields in the 2-3% range and a 30-day SEC yield of 2.57% at the end of 2014.

MutualFunds.com: About one-third of the holdings in the fund are in the energy sector. Has the fall in oil prices impacted returns for the fund?

Skip Aylesworth: To the extent that falling oil prices have resulted in indiscriminate selloffs of energy stocks, the answer is yes. However, the Fund’s holdings are primarily involved in natural gas distribution and have minimal exposure to the commodity price of oil. The Fund owns no oil E&P (Exploration and Production) companies. The Fund’s pipeline companies may have some exposure to the transporting oil, and if oil production eventually declines, these companies may have some reduced revenue opportunities.

MutualFunds.com: The demand for natural gas is growing for both residential and commercial use. Can you elaborate on some of the most important demand drivers that investors should pay attention to?

Skip Aylesworth: The primary driver of growing natural gas consumption will be conversion of base loaded power plants over the next ten years. The country has an ageing fleet of coal fired power plants that emit high levels of greenhouse gases (CO2). Natural gas will be the fuel of choice as these plants are retired and replaced with more efficient and cleaner power facilities.

Commercially, new facilities that are large energy users (i.e. chemical, aluminum, auto etc.) will be powered using natural gas. As the economy grows, so will the demand for natural gas.

Finally, new home construction will feature natural gas where available. Older housing will convert to natural gas to replace the high cost of oil for heating. Even with today’s low oil price, natural gas is economically cheaper and environmentally cleaner than oil.

Lower oil prices may reduce (depending on how low oil goes) natural gas use and/or growth as a transportation fuel. In the past, the use of natural gas for transportation was considered to be a potential future growth driver.

Finally, Liquid Natural Gas (LNG) exportation was also considered a future growth driver. Facilities to export LNG will begin to come on-line later this year or early next year. The lower oil prices have altered international markets for LNG. Whatever the markets prove to be later in 2015 or 2016 will determine the significance of LNG exportation as a driver for future growth.

MutualFunds.com: Over the last five years, GASFX has outperformed both the energy and the utilities sector ETFs. Can you describe what drove your fund to outperform both of these sectors?

Skip Aylesworth: The Fund’s emphasis on natural gas distribution, not exploration and production (E&P), has served the Fund’s companies well over the five year period. This has been a period where we have solidified our supply of natural gas domestically and prices have dropped to historical lows. The net effect is that demand for the product has grown, and this has boded well for the companies involved in natural gas distribution.

MutualFunds.com: Looking ahead, what is your outlook for oil and natural gas prices in 2015?

Skip Aylesworth: I am anticipating that oil prices will decline further to the $35.00 to $40.00 level for the 2nd half of 2015. The wholesale price of natural gas should decline to a range of $2.00 to $2.50 by the summer and early fall of 2015.


The Bottom Line


DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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