Company: SRV
Filing Date: 2025-02-10
Form Type: N-CSR
Source: 0001398344-25-002262
Chunk: 5

Company: NXG Cushing Midstream Energy Fund
Filing Date: 2025-02-10
Form: N-CSR
Chunk 5
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34% of managed assets, compared to an average leverage ratio of 20% in the prior fiscal year.

Closing

The midstream energy sector, as represented by the AMEI, has delivered strong absolute and relative performance for four years, outperforming both energy and infrastructure sectors, including upstream, refining, utilities, and REITs. Even without the benefit of rising commodity prices, midstream balance sheets are at a historical high. With less need to allocate FCF toward debt reduction, the potential for enhanced returns to equityholders—through dividends, distributions, and buybacks—is increasingly being realized, offering protection against market volatility.

Midstream’s financial outlook has improved significantly, with rising returns on invested capital driven by higher-return brownfield projects. Discipline in M&A has also bolstered investor confidence in capital allocation. As a result, we believe midstream may be gaining recognition for offering a more consistent and reliable investment opportunity.

Despite these strengths, the sector trades at a discount relative to historical norms and the broader market. We think factors such as low energy weighting in the S&P 500, concerns about inflation, and global demand uncertainties have limited generalist interest.

For long-term investors, current valuations are attractive, with fundamentals pointing to overlooked growth opportunities. Key trends—such as growth in Permian gas and NGL production and sustained natural gas demand to support AI and data center development—are likely to drive EBITDA upward through the end of the decade. We believe the sector is broadly undervalued, with both near-term growth potential and long-term asset value underappreciated. Looking ahead, a combination of EBITDA growth, share buybacks, and dividend increases should drive positive returns for investors. While not a core part of our thesis, these factors could also contribute to a re-rating of the sector higher toward historical valuation levels as investors reengage.

We truly appreciate your support and look forward to continuing to help you achieve your investment goals.

Sincerely,

John Musgrave
Chief Executive Officer, President, Chief Investment Officer and Portfolio Manager

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The information provided herein represents the opinion of the Fund’s portfolio managers and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice. The opinions expressed are as of the date of this report and are subject to change.

The information in this report is not a complete analysis of every aspect of any market, sector, industry, security, or the Fund itself. Statements of fact are from sources considered reliable,