The worst sectors for income investors to buy in 2023

Disruptions have begun in energy markets, especially if you’ve been dealing with oil stocks soaring in 2022.

It is the fact that oil stocks have been “disconnected” from the underlying oil price.

This makes it clear that oil stocks (including high-yielding oil investment options such as master limited partnerships (MLPs) and energy-focused closed-end funds (CEFs)) are likely to come under pressure in the new year. is shown. in the face of recession.

Below are two specific petroleum CEFs to avoid.

Of course, if you’re an oil investor, this shouldn’t come as a surprise.

For example, you may remember that in 2008 there was a big oil price spike. Oil prices soared by about 46% by midyear and ended up in the red.

So to be a successful oil investor, you need to be agile in and out. As I said at the outset, the recent divergence in oil inventories is a good sign that now might be a good time to step aside.

But what about the long term? Still, I don’t like energy as an investment, especially for modest income investors. Take a look at the chart below showing the decade from 2008 to 2018.

The S&P 500 is SPDR S&P 500 ETF Trust (SPY
AD
spy
), In purple, slightly above the spot price of crude (orange) at the time, crude remained barely profitable and posted a combined gain. over ten years, 6.5%.

The long-term future of energy is changing

One of the biggest parts of the energy bullishness is that demand for commodities will always rise as the economy grows. But an interesting change is underway.

Admittedly, this is a small change, but as we saw above, Americans have been cutting back for some time despite the country’s sizeable energy reserves. has decreased further, but overall usage will continue to decrease in 2022 due to increased green energy supply and improved energy efficiency.

Digging deeper into the demand landscape, we see that the amount of energy used in US commercial buildings is also declining. This includes natural gas, another energy commodity under pressure in the long and short term.

According to the EIA, energy consumption in commercial buildings fell 1.3% annually in the United States from 2003 to 2012. From 2012 to 2018, the annual decline accelerated by 1.5%.and it is Previous Pandemic.

This trend is likely to continue, putting downward pressure on oil and gas prices.

Given the bleak outlook for oil and gas, I’ve avoided adding funds that hold energy companies. CEF Insider The service leverages CEF funding and often focuses on high monthly dividend payouts.

So we are moving away from CEF. First Trust Energy Income and Growth Fund (FEN), This one might lure you in with an 8.6% dividend yield and a 7.3% discount to NAV.Focusing on master limited partnerships for pipeline operations such as Enterprise Products Partners (EPD), Energy Transfer LP (ET) When TC Energy (TRP), The fund is one of the first to suffer from reduced demand in the recession.

similarly focused Tortoise Energy Infrastructure Corp (TYG), On the other hand, a 9% yield could be jeopardized by a plunge in energy prices, making it a fund to sell now or avoid if you don’t own one.

Michael Foster contrarian outlookFor more great income ideas, click here to see our latest report.Immortal Income: 5 bargain funds with a stable 10.2% dividend.“

Disclosure: None