Company: SRV
Filing Date: 2025-02-10
Form Type: N-CSR
Source: 0001398344-25-002262
Chunk: 2

Company: NXG Cushing Midstream Energy Fund
Filing Date: 2025-02-10
Form: N-CSR
Chunk 2
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The S&P 500 Energy Sector GICS Level 1 Index recorded a total return of +16.76% for the period, making it the second worst-performing sector in the S&P 500. The energy sector struggled due to declining commodity prices, with crude oil prices falling to less than $70 per barrel. Contributing factors included softening economic data, such as weaker nonfarm payrolls and labor conditions, which heightened fears of an economic downturn. Weak demand, particularly from China, along with concerns about non-OPEC supply growth and OPEC’s actions, also weighed on prices.

Despite headwinds in the broader energy sector, the midstream sector not only weathered the storm but also outperformed the broader market, even as the latter reached new highs. We attribute this strength to midstream’s robust free cash flow (FCF) generation, which has enabled a multi-faceted return of capital to investors. As we highlighted in our 2023 year-end filing: “With market-leading FCF yields and a strong focus on shareholder returns, we assert that the midstream sector is consistently undervalued and mispriced. High dividend yields, consistent dividend growth, stock buybacks, and debt reduction should serve as catalysts, boosting market sentiment and nudging investors to acknowledge the inherent value within the midstream energy sector.”

Fund Performance and Strategy

For the period, the Fund delivered a +42.91% total return, underperforming the total return of +51.22% for the Fund’s benchmark, the AMEI after accounting for the dilutive effect of the October 2024 rights issue. While performance across subsectors was generally positive, the larger subsectors made notable positive contributions to overall results, whereas a few smaller subsectors experienced negative absolute performance.

Overweight positioning in the Natural Gas Gatherers & Processors subsector made that group the top contributor to relative performance and the second-highest contributor to absolute performance. The Fund also benefited from holdings in the Large Cap Diversified C-corps and Large Cap Diversified MLPs subsectors, which represented the first and third-highest contributors to absolute performance. On both a relative and absolute basis, the Fund benefited from overweight positions in both the Utilities and Exploration & Production subsectors.

The three largest contributors to relative performance were overweight positions in the Natural Gas Gatherers & Processors, Utilities, and Exploration & Production subsectors. Despite their relatively small position sizes, the latter two subsectors were significant contributors