Unfortunately, KYN earns a significant amount of their money as a percentage of assets. They earn a fee for investing this money in various MLPs. The problem with this is that it creates an incentive for them to continually issue shares so that they can earn more money since they will then be managing more assets.
Thus, if you've followed KYN for the last few years, you'll see literally half a dozen significant share issuances. This puts a cap on what the stock can appreciate and further dilutes shareholders.
Worse, they are leveraged, too. You would be far better off just buying their holdings. Their underlying holdings are not diluting their sharholders and are not leveraged like KYN.
JMF is a new Nuveen fund that just had their IPO. Very little info at this point. However, the expenses listed are a fraction of what Kayne Anderson rips off investors for. There are others as well but this fund has the lowest expense ratio I have seen for an MLP fund. I am looking forward to getting more details on their investments and expected yield. I am looking to move everything to another fund as Kayne Anderson does a terrible job of taking care of their investors. The additional offerings have benefited nobody but them.
I hate to bring this back, but I was just reviewing KYN vs. pretty much every single one of their holdings and you'll notice that nearly every single one has dramatically outperformed this stock.
The interest expense is disgusting here and they do EVERYTHING they can do to hide it.
Try giving investor relations a call and ask about it. They will dance and dance and dance around the issue. The reality is that they charge in excess of 6% to holders which is one of the many factors keeping the stock in check. Worse, they issue secondaries as if their lives depended on it.
One of the worst funds I've seen in my entire life in terms of shareholder friendliness. The only reason they have a positive return is that the assets they hold have gone up so much that it has historically outweighed the balloon high expense ratio they charge.
Let me start with I completely agree. There are a variety of situations where KYN offers an improved solution versus the underlying holdings. You metioned a few...
1) I agree, in IRA's there's no better choice and MLPs offer an extremely attractive yield. So, no question, KYN, EEQ, etc work for an IRA.
2) It depends. If they are already paying an accountant, it's no big deal to add a K1 to the mix. If they aren't paying a K1, it's not that much more complex to add one, although you need to learn how to do it. There's clearly a threshold that varies from person to person below, it would make more sense to simply own KYN.
3) If they are savy enough to understand KYN, its leverage, how MLPs work, why they pay dividends, etc, they should understand and be able to own the underlying assets. KYN is not Apple. In other words, if you've done your homework enough to find KYN, you are savy enough to figure out what it holds and why they each might make sense for you to own.
I think 10-15% of diversified portfolios should be invested in MLPs, at any age, at least at these yields/opportunities for capital appreciation.
My point wasn't that KYN doesn't make sense in every single situation, just a lot of them. You could own 3 MLPs where each one makes up 4% of your portfolio. I'm ranting more about how they've grossly taken advantage of their shareholders.
So what is your recommendation then for an investor that wants to....
1. Own MLP's in their IRA account?
2. Wants to buy MLP's but only has small amounts to invest (cost of filing K1 is significant compared to the individual investment - accountant's fee)?
3. Wants to buy MLP's but doesn't understand the market well enough and doesn't have the time and/or the expertise to figure it out well enough, not to mention following the investments properly?
If replicating the top holdings of KYN in a taxable account is not a realistic option for an investor, would you agree that KYN provides an investor with a diversified, high yield MLP income stream that stands on its own as an investment opportunity and should be compared to other realistic options for that particular investor and not a strategy that can't be implemented?
I am a sophisticated MLP investor with a large investment in 20 individual MLP's in my taxable account, but I still find benefit in the Kayne Anderson funds for my IRA given that I cannot purchase the MLP's individually in that account.
All you need to do to confirm is look at the underlying assets that they own. You can very easily look up their top 10 holdings on their website or on Yahoo Finance. The top 10 make up about 60% of their holdings. Of the top 10, about 8 of them have absolutely crushed the return of KYN over the past year or so. The average return of those 10 holdings is about 10% higher than KYN, an absurd gap.
I don't care how much of a pain K1s are, you are losing 10%. Most people would take 10% happily in a year.
This is from fees, which KYN naturally buries. But, total fees, including interest on their leverage can run over 6%.
Worse, because it issues K1s, it is taxable. So, in a year where one of the holdings earnings a profit and doesn't pay taxes, KYN does...to the tune of 40%--and you'll still need to pay long or short term capital gains on this. It's impossible for them to compete with the underlying holdings. At worst, with a K1, you'll be taxed at 35% right now, and possibly lower depending on your income bracket.
I would just add that I doubt that a significant portion of the offering proceeds will be used for "general corporate purposes" other than buying new MLP holdings. The company doesn't do much other than buy and sell MLPs and various debt and hedging instruments related to those purchases and sales. So things will go along as they were and it's unlikely they'll need to hire new personnel as a result of the new cash infusion.
BTW, the price of their last offering a few months ago was $23.60 a share if I remember correctly. This one is being priced at $26.30. So it doesn't appear that these offerings depress the stock price for very long.
I agree on the management fees and Kayne Anderson's are higher than they should be. However, they do remove the need for filing all the K1's you would have to on the underlying holdings. In addition, you can buy this fund in an IRA, which you couldn't do with the individual holdings. So I own KYN and KYE to participate in the MLP market in my IRA and accept the trade off. I own lots of individual MLP's in my taxable account. The leverage also works for the shareholders when things are moving in a positive direction. Given the extended, historically low interest rate environment this should continue at least in the short term. I also think for the unsophisticated investor or investor who doesn't have time to follow the individual MLP's that this is a good way to go. There are also instances where Kayne Anderson can make direct investments in MLP's on more attractive terms than an individual investor can. It could be argued that this could offset the management fees and more.
Unless I'm missing something, the offering isn't really dilutive. If KYN issues more shares and uses the proceeds to add to its holdings of MLPs, the NAV per share of KYN should remain about the same and so should the distributions. Maybe that's why each of the recent financings has depressed KYN's stock price for only a month or so and then it's rebounded. If the valuations of the constituent MLPs go up, so should KYN's NAV, and vice versa.
I suppose one could argue that because of its fee structure KYN has an incentive to keep doing this even when MLPs aren't a good buy. So far the offerings have generally been timed well but we'll see if that continues.