In our Top 100 Funds list we have a section for specialist funds that allow you to invest thematically. One of these is Ecofin Water & Power Opportunities, which is a split capital UK investment trust (a type of closed-end fund) that has an unlimited life and invests in the global utilities, utility-related and energy sectors. The trust aims to achieve a high, secure dividend yield alongside long-term growth, while aiming to preserve shareholders' capital.
Winterflood Investment Trusts thinks the trust offers attractive value for several reasons. The ordinary income shares (ECWO) trade at a substantial discount to net asset value of 27 per cent and come with an attractive yield of 5.6 per cent. ECWO is trading at 117p, 8.38 per cent below its 52-week high of 127.7p, set on 25 April 2012.
Plus a new transaction increases the appeal. On 22 October Ecofin Water & Power Opportunities (EW&PO) announced that it had agreed to sell its 81 per cent holding in Ecofin Energy Resources (EER), an unlisted company, for new shares in Amadeus Energy. EER is EW&PO's largest investment, at 14 per cent of the portfolio, and is active in US unconventional oil and gas production through Texas-based Lonestar Resources. Amadeus Energy, which is listed on the Australian Stock Exchange, is also involved in the production of oil and natural gas in North America.
Ecofin Energy Resources' reverse merger into Amadeus Energy represents a key stage in its development. Following the deal's completion in early December, Amadeus will change its name to Lonestar Resources.
Winterflood analysts say: "Ecofin Water & Power Opportunities has a long record of investing in 'special situations' and this is an important investment for the fund. Although it is not yet clear what the immediate impact will be on the holding's valuation, the merger potentially provides liquidity, a market valuation and a platform for further growth. This in turn should increase the attractiveness of Lonestar Resources to the 'mid majors'.
"This investment is not without its risks, including changes in oil and gas prices. However, these are reduced by the increase in its size, its profitability, and the experience of its management team. Consequently, we believe that Lonestar Resources provides considerable upside on a longer-term view."
The managers of ECWO say they are maintaining a cautious stance and a selective approach to utilities. The portfolio remains focused on the investment opportunities inherent in the development of energy infrastructure necessary to deliver shale gas, oil and liquids to markets. The trust has recently reduced exposure to the UK market where it says valuations are at historically high levels versus continental Europe's regulated names. On the continent it has taken profits on one of its core positions E.ON during September's mid-month rally.
Ecofin Water & Power Opportunities (ECWO)
|Launch date||26 February 2012|
Source: Investors Chronicle
*Assets historically attributable to Income, Capital, ZDP and ordinary shares
**26 February 2012
(1) As at 30 September 2012
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