WHEATON, Ill.--(BUSINESS WIRE)--Each of First Trust Energy Infrastructure Fund (NYSE: FIF), First Trust New Opportunities MLP & Energy Fund (NYSE: FPL), and First Trust MLP and Energy Income Fund (NYSE: FEI) is significantly reducing its regularly scheduled monthly distribution per share described below. Additionally, First Trust Energy Income and Growth Fund (NYSE: FEN) is significantly reducing its regularly scheduled quarterly distribution per share for July described below. The distribution for FIF will be payable on May 15, 2020, to shareholders of record as of May 4, 2020, with an ex-dividend date on or around May 1, 2020. The distribution for FEN will be payable on July 31, 2020, to shareholders of record as of July 23, 2020, with an ex-dividend date on or around July 22, 2020. For FEI and FPL, the payable, record and expected ex-dividend dates are as follows:
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May |
June |
July |
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Payable Date: |
05/15/20 |
06/15/20 |
07/15/20 |
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Record Date: |
05/04/20 |
06/02/20 |
07/02/20 |
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Expected Ex-Dividend Date: |
05/01/20 |
06/01/20 |
07/01/20 |
The distribution information for the Funds appears below.
First Trust Energy Infrastructure Fund (FIF): |
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Distribution per share: |
$0.0625 |
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Distribution Rate based on the April 17, 2020 NAV of $11.30: |
6.64% |
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Distribution Rate based on the April 17, 2020 closing market price of $9.84: |
7.62% |
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Decrease from previous distribution of $0.11: |
-43.18% |
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First Trust New Opportunities MLP & Energy Fund (FPL): |
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Distribution per share: |
$0.0375 |
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Distribution Rate based on the April 17, 2020 NAV of $4.76: |
9.45% |
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Distribution Rate based on the April 17, 2020 closing market price of $4.15: |
10.84% |
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Decrease from previous distribution of $0.075: |
-50.00% |
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First Trust MLP and Energy Income Fund (FEI): |
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Distribution per share: |
$0.05 |
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Distribution Rate based on the April 17, 2020 NAV of $6.32: |
9.49% |
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Distribution Rate based on the April 17, 2020 closing market price of $5.26: |
11.41% |
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Decrease from previous distribution of $0.10: |
-50.00% |
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First Trust Energy Income and Growth Fund (FEN): |
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Distribution per share: |
$0.30 |
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Distribution Rate based on the April 17, 2020 NAV of $12.42: |
9.66% |
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Distribution Rate based on the April 17, 2020 closing market price of $11.71: |
10.24% |
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Decrease from previous distribution of $0.58: |
-48.28% |
The distribution reductions result from three factors that have lowered each Fund’s distributable cash flow: 1) a reduction in each Fund’s assets as a result of portfolio sales to reduce each Fund’s leverage to maintain compliance with applicable leverage limits, 2) reduced dividend payments from portfolio companies lowering dividend payout ratios and 3) anticipated changes to the portfolio composition including each Fund’s use of leverage and reductions to income from the covered call strategy.
The Alerian MLP Total Return Index (“Index”) total return for the three months ended March 31, 2020 was -57.19%. This was the worst quarterly performance in the history of the Index. While each Fund’s holdings did not mirror the Index’s holdings, large holdings in each Fund overlapped with companies in the Index that were also down during the quarter requiring a reduction in the Fund’s borrowing level in order to maintain compliance with applicable leverage limits. These borrowings have historically enhanced each Fund’s cash flows through the purchase of higher yielding securities such as master limited partnerships (“MLPs”), pipeline corporations and utilities. As such, reduced borrowings negatively affect each Fund’s cash flows.
While most MLP-structured portfolio companies have moved toward self-financing of growth by retaining cash through lower or slower-growing cash distributions, recent events have led to further distribution cuts in response to anticipated reductions to earnings and in order to preserve cash and support the balance sheet even if earnings still support current dividends.
Market volatility especially in energy related industries requires a more conservative approach to each Fund’s use of leverage going forward. Historically low valuations call for adjustments to the covered call strategy that would otherwise truncate any potential recovery. All else equal, lower fund leverage and reduced covered call writing reduce each Fund’s ability to generate distributable cash flow.
FIF’s Board of Trustees has approved a managed distribution policy for the Fund (the "Plan") in reliance on exemptive relief received from the Securities and Exchange Commission which permits the Fund to make periodic distributions of long-term capital gains as frequently as monthly each tax year. Under the Plan, the Fund intends to continue to pay its recurring monthly distribution in the amount of $0.0625 per share that reflects the distributable cash flow of the Fund. A portion of this monthly distribution may include long-term capital gains. This may result in a reduction of the long-term capital gain distribution necessary at year end by distributing long-term capital gains throughout the year. The annual distribution rate is independent of the Fund's performance during any particular period. Accordingly, you should not draw any conclusions about the Fund's investment performance from the amount of any distribution or from the terms of the Plan.
FIF’s distribution may consist of net investment income earned by the Fund, net short-term and long-term capital gains and/or tax-deferred return of capital. Tax-deferred return of capital, if any, is primarily due to the tax treatment of cash distributions made by MLPs in which the Fund invests. The final determination of the source of tax status of all 2020 distributions will be made after the end of 2020 and will be provided on Form 1099-DIV.
It is anticipated that, due to the tax treatment of cash distributions made by the publicly-traded MLPs in which each of FEI, FPL and FEN invests, a portion of distributions each of these Funds makes to Common Shareholders may consist of a tax-deferred return of capital. The final determination of the source and tax status of all distributions paid in 2020 will be made after the end of 2020 and will be provided on Form 1099-DIV.
Each Fund is a non-diversified, closed-end management company. FIF seeks to provide a high level of total return with an emphasis on current distributions paid to shareholders by investing primarily in securities of companies engaged in the energy infrastructure sector. FPL seeks a high level of total return with an emphasis on current distributions paid to comment shareholders by investing in publicly traded MLPs and MLP-related entities in the energy sector and energy utilizes industries that are weighted towards non-cyclical, fee-for-service revenues. FEI seeks to provide a high level of total return with an emphasis on current distributions paid to common shareholders by investing in publicly-traded MLPs and MLP-related entities in the energy sector and energy utilities industries. FEN seeks a high level of after-tax total return with an emphasis on current distributions paid to shareholders by investing in MLPs and related public entities in the energy sector which the FEN’s investment sub-advisor believes offer opportunities for income and growth.
FPL, FEI and FEN are each treated as a regular corporation, or a "C" corporation, for United States federal income tax purposes and, as a result, are subject to corporate income tax to the extent each Fund recognizes taxable income.
First Trust Advisors L.P. ("FTA") is a federally registered investment advisor and serves as each Fund's investment advisor. FTA and its affiliate First Trust Portfolios L.P. ("FTP"), a FINRA registered broker-dealer, are privately-held companies that provide a variety of investment services. FTA has collective assets under management or supervision of approximately $115 billion as of March 31, 2020 through unit investment trusts, exchange-traded funds, closed-end funds, mutual funds and separate managed accounts. FTA is the supervisor of the First Trust unit investment trusts, while FTP is the sponsor. FTP is also a distributor of mutual fund shares and exchange-traded fund creation units. FTA and FTP are based in Wheaton, Illinois.
Energy Income Partners, LLC ("EIP") serves as each Fund's investment sub-advisor and provides advisory services to a number of investment companies and partnerships for the purpose of investing in MLPs and other energy infrastructure securities. EIP is one of the early investment advisors specializing in this area. As of March 31, 2020, EIP managed or supervised approximately $3.7 billion in client assets.
Past performance is no assurance of future results. Investment return and market value of an investment in each Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. There can be no assurance that each Fund’s investment objectives will be achieved. Each Fund may not be appropriate for all investors.
Principal Risk Factors: Each Fund is subject to risks, including the fact that it is a non-diversified closed-end management investment company. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. The outbreak of the respiratory disease designated as COVID-19 in December 2019 has caused significant volatility and declines in global financial markets, which have caused losses for investors. The impact of this COVID-19 pandemic may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession.
Because each Fund is concentrated in securities issued by energy companies, energy sector MLPs and MLP-related entities, it will be more susceptible to adverse economic or regulatory occurrences affecting those industries, including high interest costs, high leverage costs, the effects of economic slowdown, surplus capacity, increased competition, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors.
Each Fund's use of derivatives may result in losses greater than if they had not been used, may require the fund to sell or purchase portfolio securities at inopportune times, may limit the amount of appreciation the fund can realize on an investment, or may cause the fund to hold a security that it might otherwise sell.
Investment in non-U.S. securities is subject to the risk of currency fluctuations and to economic and political risks associated with such foreign countries.
Use of leverage can result in additional risk and cost and can magnify the effect of any losses.
The risks of investing in each Fund are spelled out in the shareholder reports and other regulatory filings.
This release contains forward-looking statements which can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “target,” “going forward,” “outlook” and similar statements. Such statements are based upon each Fund's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and may cause a Fund's actual results, performance or distributions to differ materially from those expressed or implied in the forward-looking statements.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Each Fund’s daily closing NYSE American price and net asset value per share as well as other information can be found at www.ftportfolios.com or by calling 1-800-988-5891.
