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Los Angeles-based Kayne Anderson Capital Advisors, established in 1984, currently manages over $15.2 billion in investments, including $8.25 billion in 13-F assets at the end of Q4, primarily via private investment partnerships and public closed-end funds. The firm employs fundamental bottom-up research to identify its investments, focusing on niche asset classes that are less understood and generally not followed by the broader investor community.

The portfolio is moderately diversified into 131 positions, with almost two-thirds of its investments in the energy sector, another 10% in utilities, another 10% in basic materials, and the remaining 15% or so across other sectors. Also, a quarter of its 13-F assets are deployed in large-caps, another half in mid-caps and the remaining quarter is in small-cap equities.

We analyzed Kayne Anderson's equity holdings in its Q4 13-F to determine its highest conviction bets (see Table), selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are its high conviction bullish positions in the basic materials and energy sectors (see Table):

Energy Transfer Equity LP (ETE): ETE owns a diversified portfolio of energy assets, including natural gas gathering and transportation pipelines, natural gas treating and processing assets, and three natural gas storage facilities. This was Kayne Anderson's largest buy in Q4, adding $442 million to its $364 million prior quarter position. At $806 million, it is also the largest position in its portfolio, and Kayne Anderson is also the largest institutional holder of ETE shares at the end of Q4. ETE shares are flat YTD, and they trade at 21-22 forward P/E and 1.2 P/B compared to the averages of 23.7 and 2.7 for its peers in the oil & gas transportation & pipeline group.

Teekay Offshore Partners (TOO): TOO is a provider of marine transportation, oil production, and storage services to the offshore oil industry. At $138 million, this is Kayne Anderson's second largest buy in Q4, adding to its $119 million prior quarter position. TOO shares currently trade at a discount 19 forward P/E and 4.6 P/B compared to averages of 30.9 and 1.3 for its peers in the shipping group.

Williams Companies (WMB): WMB is an energy infrastructure company, owns and operating approximately 13,700 miles of natural gas pipeline system extending from Texas, Louisiana, Mississippi and offshore Gulf of Mexico through Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania, and New Jersey to the New York City metropolitan area. Kayne Anderson added $48 million in Q4 to its $126 million prior quarter position. WMB shares have performed well this year, up over 15% YTD, and trading at 18-19 forward P/E and 10.2 P/B compared to averages of 23.7 and 2.7 for its peers in the oil & gas transportation & pipeline group.

Spectra Energy Corp. (SE): Spectra is engaged in the gathering, processing, transmission, storage and distribution of natural gas in the U.S. and Canada. Kayne Anderson added a new $28 million position in the company in Q4. Spectra shares trade at a discount 15-16 forward P/E and 2.3 P/B compared with averages of 23.7 and 2.7 for its peers in the oil & gas transportation & pipeline group.

Other high conviction buys in the basic materials and energy sector by Kayne Anderson include (see Table):

  • Golar LNG Partners LP (GMLP), that owns and operates floating storage and re-gasification units and LNG carriers under long-term charters, in which it added $38 million to its $34 million prior quarter position;
  • Nustar Energy LP (NS), a MLP engaged in the terminalling, storage and transportation of petroleum products primarily in the U.S., Canada, the Netherlands, Mexico and the U.K., and also engaged in the refining of crude oil to produce asphalt and other refined products, in which it added a new $24 million position;
  • Centerpoint Energy Inc. (CNP), that provides electricity transmission and distribution, natural gas distribution and sales, interstate pipelines and gathering operations to customers in AR, IL, IA, KS, LA, MN, MS, MO, OK, TX, and WI, in which it added a new $10 million position;
  • Peabody Energy Corp. (BTU), engaged in coal production and sale through 28 operations in the U.S. and Australia, in which it added $9 million to its $10 million prior quarter position; and
  • Consol Energy Inc. (CNX), a producer of bituminous coal and coal-bed methane gas, primarily in the northern and central Appalachian and Illinois basins, in which it added $8 million to its $13 million prior quarter position.

The following are Kayne Anderson's high conviction bearish picks in the basic materials and energy sectors based on its Q4 selling activity (see Table):

  • Holly Energy Partners LP (HEP), that operates a system of petroleum product and crude oil pipelines, storage tanks, distribution terminals, and loading rack facilities, in which it cut $15 million from its $52 million prior quarter position;
  • VOC Energy Trust (VOC), that owns a term net profits interest of the net proceeds from production of the interests in oil and natural gas properties in the states of Kansas and Texas, in which it cut $13 million from its $38 million prior quarter position; and
  • Arch Coal Inc. (ACI), engaged in the production of steam and metallurgical coal from surface and underground mines, in which it cut $5 million from its $9 million prior quarter position.

Table

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Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Kayne Anderson's High Conviction Buys And Sells In Its $8.3 Billion 13-F Portfolio