A few years ago, while searching through some closed-end funds looking for some that were selling below net asset value, I stumbled upon Petroleum & Resources (PEO). In my portfolio, which has otherwise provided inconsistent returns, PEO has been a consistent provider of both income and capital gains. It holds energy and resource-related stocks, and currently trades at a ridiculous 13.7% discount to net asset value. These are the top 8 holdings in PEO (as of March 31, 2013).
- Exxon (XOM) 16.4%
- Chevron (CVX) 12.5%
- Schlumberger (SLB) 5.9%
- Occidental Petroleum (OXY) 4.1%
- Anadarko (APC) 3.3%
- Phillips 66 (PSX) 3.1%
- Hess (HES) 3.0%
- Noble Energy (NBL) 2.8%
Unless you work at one of these companies and have stock options granted to you, then investing in PEO is pretty much the cheapest way you can own shares in XOM, CVX, etc. PEO has also committed to paying a minimum 6% dividend regardless of market conditions, and has a very reasonable 0.6% annual expense. More information about PEO can be obtained here.
Besides PEO, there are also a couple other closed-end funds focusing on the energy sector trading at a significant discount to net asset value. They are BlackRock Energy & Resources (BGR) and BlackRock Resources & Commodities (BCX).
BGR trades at a 8.5% discount to net asset value. Its top 5 holdings (as of March 28, 2013) are Gulfport Energy (GPOR), Anadarko Petroleum, Valero (VLO), Noble, and Range Resources (RRC). The allocation is less concentrated than PEO, with no holding more than 6% of the portfolio. What's unique about BGR is that it also invests in options for some of these companies. The annual expense of 1.3% is higher than PEO. More information about this fund can be obtained here.
BCX also trades at a 8.5% discount to net asset value. Its top 5 holdings (as of March 28, 2013) are Chevron, XOM, Monsanto (MON), BHP Billiton (BHP), and Syngenta (SYT). Like BGR, no holding is greater than 6% of the portfolio. Unlike BGR, the primary goal of BCX is income ahead of capital appreciation. It has an annual expense similar to that of BGR.
The three funds mentioned in this article provide safer ways to play energy stocks. They have been trading at a significant discount to net asset value for the past couple of years (longer for PEO). It is only a matter of time before these funds are properly revalued by Mr. Market and given a discount closer to 0%. Finally, for those who would like to search for their own closed-end funds, you can search for them here. You will find dozens of funds besides PEO that are trading at a discount.