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The Oil Crash Is Hitting This Investment Hard – The Wall Street Journal

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Crude prices have plummeted, hurting shares of energy companies.



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The plunge in crude-oil prices is sending shock waves through closed-end funds tracking the energy sector, highlighting how the market turmoil is hitting products popular with ordinary investors seeking to boost returns during the long bull market.

Shares of the Goldman Sachs MLP and Energy Renaissance Fund have fallen 78% this month, while shares of the

Kayne Anderson MLP/Midstream Investment Co.

and the

Kayne Anderson Midstream/Energy Fund Inc.

have fallen 74%, respectively. Shares of the

Tortoise Energy Infrastructure Corp.

and the

Tortoise Midstream Energy Fund Inc.

have lost more than 80% of their value.

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A closed-end fund is similar to a mutual fund, but its shares trade on an exchange. A professional manager oversees the fund’s holdings, deciding what to buy and sell. Unlike mutual funds, closed-end funds issue a fixed number of shares, after which capital rarely flows in or out of the fund. Also unlike mutual funds, they tend to use leverage to juice their payouts—borrowing at short-term interest rates and investing the proceeds in longer-term securities that pay higher returns.

That is a tactic that makes them attractive to investors when things go well, but one that can also amplify losses when markets sour. There are laws that cap the funds’ leverage, so when the value of their underlying securities falls, they often need to reduce their leverage by selling assets, as they cannot easily raise capital by issuing new shares.

That is what is happening now: As crude prices have plummeted, hurting shares of energy companies and the market value of the funds’ holdings, several have been forced to reduce their leverage by selling securities. That has cut down on the amount of money available to pay investors, which likely will lead to funds cutting their distributions, asset managers say.

“The life blood of a closed-end fund is its yield,” said Erik Herzfeld, president of Thomas J. Herzfeld Advisors, a boutique asset manager focusing on closed-end funds. “The last thing they want is to cut their dividend—that’s what keeps people invested in them.”

Last week, Fitch Ratings downgraded senior secured notes and preferred-shares ratings for several closed-end funds that invest in midstream companies, including funds managed by Kayne Anderson and Tortoise, citing “unprecedented declines” in the per-share value of the funds’ underlying securities. Even though the funds are selling securities to reduce leverage and increase cash, the forced selling has further exacerbated declines, according to Fitch.

Moody’s Investors Service this week placed a negative outlook on closed-end funds, particularly those investing in riskier areas, including the energy sector. Among other worries, the ratings firm warned that big declines in the funds’ assets placed them in danger of breaching regulations governing the amount of leverage they can employ.

U.S. crude prices have fallen 60% so far this year, as the coronavirus crisis wreaks havoc on demand for crude and a Saudi-Russia price war threatens to flood even more oil into an amply supplied market. The price drop has wreaked havoc on companies throughout the industry, forcing them to cut spending and, in some cases, their dividends.  Exxon Mobil Corp. shares have declined 39% this month. Shares of

Pioneer Natural Resources Co.

have lost about 50% of their value, while shares of

Kinder Morgan Inc.

have dropped 42% and

Magellan Midstream Partners

LP shares have fallen 49%.

Some closed-end funds have already been forced to cut their payouts. Investment firm Kayne Anderson said last week that it would be reducing the leverage of its two midstream-focused funds and that their March distributions would be delayed by a month. Moving forward, the funds will make payments on a quarterly basis instead of a monthly basis, the firm said.

Others are still undecided. The Goldman Sachs Energy & Renaissance Fund said earlier this month that it decided to eliminate its leverage entirely and will continue evaluating the fund’s distribution level in the coming quarters. Tortoise, which is also taking measures to reduce its funds’ leverage, told The Wall Street Journal that any decision on future distributions will be made at the next meeting of the funds’ board of directors.

“Leverage is lovely when things are going up, and really awful when things are going down,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.

Shares of closed-end funds typically trade at a discount or premium to the per-share value of the funds’ holdings, depending on investor demand. The Neuberger Berman MLP and Energy Income Fund Inc., the

ClearBridge Energy Midstream Opportunity Fund Inc.

and the

Cushing Energy Income Fund

all were trading at least 25% below the per-share value of their securities as of Friday, according to data from the Closed-End Fund Association, a trade group that represents the closed-end-fund industry.

Some investors view that as an opportunity. If they buy fund shares at a discount and that gap narrows, they can make a profit. But if a fund’s discount to net asset value widens, then investors can lose two ways: on the decline in value of its holdings and on the fall of its own share prices.

Investors looking for bargains should proceed with caution, said Timothy Parker, a partner at Regency Wealth Management. He is advising clients against buying energy closed-end funds in an attempt to take advantage of current discounts. Demand for crude is likely to remain limited in a global economy pummeled by the virus, hitting energy companies and probably their dividends.

“It might seem like it could be a great time to buy now, but who are you going to sell it to?” he said.

Write to Sarah Toy at sarah.toy@wsj.com

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In years before outbreak, investment in public health shrunk – CityNews Vancouver

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In the decade before Michigan and its largest city became the latest hot spot for the deadly coronavirus, officials were steadily, and at times dramatically, cutting back on their first line of defence against pandemics and other public health emergencies.

Approaching bankruptcy, Detroit disbanded most of its public health department and handed its responsibilities to a private non-profit. When the department reopened in 2014 in the back of the municipal parking office, its per capita budget was a fraction of other big cities’, to serve a needier population.

In Ingham County, home to the capital city of Lansing, then-Public Health Director Renee Branch Canady sat down at budget time every year for seven straight years to figure out what more to cut.

“It was just chop, chop, chop,” Canady said. By the time she left in 2014, all the health educators, who teach people how to prevent disease, were gone.

What happened in Michigan also played out across the country and at the federal level after the 2008 recession, which caused serious budget problems for governments. But as the economy recovered, public health funding did not, a review of budget figures and interviews with health experts and officials shows.

A shortfall persisted despite several alarming outbreaks, from H1N1 to Ebola, and has left the U.S. more vulnerable now to COVID-19, experts say. In normal times, public health workers are in the community, immunizing children, checking on newborns and performing other tasks. In a health emergency, they’re tracing outbreaks, conducting testing and serving as “first responders” when people fall sick — efforts that are lagging in many states as the coronavirus spreads.

“Our funding decisions tied their hands,” said Brian Castrucci, who worked with health departments in Philadelphia, Texas and Georgia and is now president of the de Beaumont Foundation, a health advocacy organization.

The cuts came under both Democratic and Republican administrations. While there is no single number that reflects all federal, state and local spending, the budget for the federal Centers for Disease Control, the core agency for public health, fell by 10 per cent between fiscal year 2010 and 2019 after adjusting for inflation, according to an analysis by the Trust for America’s Health, a public health research and advocacy organization. The group found that federal funding to help state and local officials prepare for emergencies such as outbreak has also fallenshrunk — from about $1 billion after 9-11 to under $650 million last year.

Between 2008 and 2017, state and local health departments lost more than 55,000 jobs — one-fifth of their workforce, a major factor as cities struggle to respond to COVID-19.

“It definitely has made a difference,” said John Auerbach, Trust for America’s Health CEO and a former public health director in Massachusetts.

New York has seen the most COVID-19 cases in the U.S., but numbers are surging in places such as Detroit, where those testing positive nearly tripled in the week between March 28 and Saturday, when officials said the city was approaching 4,000 cases, with 129 deaths. A more robust health system could have done more earlier to track down and isolate people who were exposed, said the city’s former health director, Abdul El-Sayed.

State spending on public health in Michigan dropped 16% from an inflation-adjusted high point of $300 million in 2004, according to a 2018 study.

Some of the funding problems, Canady and other public health advocates believe, stem from a fundamental belief in smaller government among Republican governors, including former Michigan Gov. Rick Snyder, who called for “shared sacrifice” after the state’s auto-dependent economy was battered by the recession.

In Kansas, then-Gov. Sam Brownback ran what he called a “red-state experiment” to cut taxes. State spending on its Public Health Division, outside of federal funds, dropped 28% between 2008 and 2016.

The cuts meant a “shifting of responsibility for services from the state level to the county level,” Democratic Gov. Laura Kelly said in an interview. “And we saw that in public health.”

In Maine, then-Gov. Paul Le Page’s administration stopped replacing public health nurses who were dealing with families in the opioid crisis. The number of nurses fell from around 60 to the low 20s before the Legislature tried to reverse the action.

Although agencies often receive emergency funding when a crisis strikes, the infusion is temporary.

“Decisions are made politically to support something when it becomes an epidemic,” said Derrick Neal, a public health official in Abilene when Ebola surfaced in Texas. “And then as time passes, the funding shrinks.”

In Oklahoma, state funding for the Department of Health still hasn’t returned to its levels of 2014, when a combination of slumping oil prices, tax cuts and corporate breaks punched a giant hole in the state’s budget. When state revenues later improved, the money went to other priorities.

“It’s much easier to cut funding for public health than it is to start taking away benefits from people or access to care for people,” said former state Rep. Doug Cox, an emergency room doctor.

Castrucci said the problem with providing more money only at times of emergency is it doesn’t allow time to recruit and train new workers.

“We waited until the house was on fire before we started interviewing firefighters,” he said.

For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia, and death.

___

Associated Press reporters David Eggert in Lansing, Michigan, Paul Weber in Austin, Texas, John Hanna in Topeka, Kansas, and Sean Murphy in Oklahoma City contributed to this report.

Sara Burnett, The Associated Press

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In years before coronavirus outbreak, U.S. investment in public health fell – Toronto Star

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In the decade before Michigan and its largest city became the latest hot spot for the deadly coronavirus, officials were steadily, and at times dramatically, cutting back on their first line of defence against pandemics and other public health emergencies.

Approaching bankruptcy, Detroit disbanded most of its public health department and handed its responsibilities to a private non-profit. When the department reopened in 2014 in the back of the municipal parking office, its per capita budget was a fraction of other big cities’, to serve a needier population.

In Ingham County, home to the capital city of Lansing, then-Public Health Director Renee Branch Canady sat down at budget time every year for seven straight years to figure out what more to cut.

“It was just chop, chop, chop,” Canady said. By the time she left in 2014, all the health educators, who teach people how to prevent disease, were gone.

What happened in Michigan also played out across the country and at the federal level after the 2008 recession, which caused serious budget problems for governments. But as the economy recovered, public health funding did not, a review of budget figures and interviews with health experts and officials shows.

A shortfall persisted despite several alarming outbreaks, from H1N1 to Ebola, and has left the U.S. more vulnerable now to COVID-19, experts say. In normal times, public health workers are in the community, immunizing children, checking on newborns and performing other tasks. In a health emergency, they’re tracing outbreaks, conducting testing and serving as “first responders” when people fall sick — efforts that are lagging in many states as the coronavirus spreads.

“Our funding decisions tied their hands,” said Brian Castrucci, who worked with health departments in Philadelphia, Texas and Georgia and is now president of the de Beaumont Foundation, a health advocacy organization.

The cuts came under both Democratic and Republican administrations. While there is no single number that reflects all federal, state and local spending, the budget for the federal Centers for Disease Control, the core agency for public health, fell by 10 per cent between fiscal year 2010 and 2019 after adjusting for inflation, according to an analysis by the Trust for America’s Health, a public health research and advocacy organization. The group found that federal funding to help state and local officials prepare for emergencies such as the coronavirus outbreak has also fallen — from about $1 billion (U.S.) after 9/11 to under $650 million last year.

Between 2008 and 2017, state and local health departments lost more than 55,000 jobs — one-fifth of their workforce, a major factor as cities struggle to respond to COVID-19.

“It definitely has made a difference,” said John Auerbach, Trust for America’s Health CEO and a former public health director in Massachusetts.

New York has seen the most COVID-19 cases in the U.S., but numbers are surging in places such as Detroit, where those testing positive nearly tripled in the week between March 28 and Saturday, when officials said the city was approaching 4,000 cases, with 129 deaths. A more robust health system could have done more earlier to track down and isolate people who were exposed, said the city’s former health director, Abdul El-Sayed.

State spending on public health in Michigan dropped 16 per cent from an inflation-adjusted high point of $300 million in 2004, according to a 2018 study.

Some of the funding problems, Canady and other public health advocates believe, stem from a fundamental belief in smaller government among Republican governors, including former Michigan Gov. Rick Snyder, who called for “shared sacrifice” after the state’s auto-dependent economy was battered by the recession.

In Kansas, then-Gov. Sam Brownback ran what he called a “red-state experiment” to cut taxes. State spending on its Public Health Division, outside of federal funds, dropped 28 per cent between 2008 and 2016.

The cuts meant a “shifting of responsibility for services from the state level to the county level,” Democratic Gov. Laura Kelly said in an interview. “And we saw that in public health.”

In Maine, then-Gov. Paul Le Page’s administration stopped replacing public health nurses who were dealing with families in the opioid crisis. The number of nurses fell from around 60 to the low 20s before the Legislature tried to reverse the action.

Although agencies often receive emergency funding when a crisis strikes, the infusion is temporary.

“Decisions are made politically to support something when it becomes an epidemic,” said Derrick Neal, a public health official in Abilene when Ebola surfaced in Texas. “And then as time passes, the funding shrinks.”

In Oklahoma, state funding for the Department of Health still hasn’t returned to its levels of 2014, when a combination of slumping oil prices, tax cuts and corporate breaks punched a giant hole in the state’s budget. When state revenues later improved, the money went to other priorities.

“It’s much easier to cut funding for public health than it is to start taking away benefits from people or access to care for people,” said former state Rep. Doug Cox, an emergency room doctor.

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Castrucci said the problem with providing more money only at times of emergency is it doesn’t allow time to recruit and train new workers.

“We waited until the house was on fire before we started interviewing firefighters,” he said.

For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia, and death.

Associated Press reporters David Eggert, Paul Weber, John Hanna and Sean Murphy contributed to this report.

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In years before outbreak, investment in public health shrunk – 680 News

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In the decade before Michigan and its largest city became the latest hot spot for the deadly coronavirus, officials were steadily, and at times dramatically, cutting back on their first line of defence against pandemics and other public health emergencies.

Approaching bankruptcy, Detroit disbanded most of its public health department and handed its responsibilities to a private non-profit. When the department reopened in 2014 in the back of the municipal parking office, its per capita budget was a fraction of other big cities’, to serve a needier population.

In Ingham County, home to the capital city of Lansing, then-Public Health Director Renee Branch Canady sat down at budget time every year for seven straight years to figure out what more to cut.

“It was just chop, chop, chop,” Canady said. By the time she left in 2014, all the health educators, who teach people how to prevent disease, were gone.

What happened in Michigan also played out across the country and at the federal level after the 2008 recession, which caused serious budget problems for governments. But as the economy recovered, public health funding did not, a review of budget figures and interviews with health experts and officials shows.

A shortfall persisted despite several alarming outbreaks, from H1N1 to Ebola, and has left the U.S. more vulnerable now to COVID-19, experts say. In normal times, public health workers are in the community, immunizing children, checking on newborns and performing other tasks. In a health emergency, they’re tracing outbreaks, conducting testing and serving as “first responders” when people fall sick — efforts that are lagging in many states as the coronavirus spreads.

“Our funding decisions tied their hands,” said Brian Castrucci, who worked with health departments in Philadelphia, Texas and Georgia and is now president of the de Beaumont Foundation, a health advocacy organization.

The cuts came under both Democratic and Republican administrations. While there is no single number that reflects all federal, state and local spending, the budget for the federal Centers for Disease Control, the core agency for public health, fell by 10 per cent between fiscal year 2010 and 2019 after adjusting for inflation, according to an analysis by the Trust for America’s Health, a public health research and advocacy organization. The group found that federal funding to help state and local officials prepare for emergencies such as outbreak has also fallenshrunk — from about $1 billion after 9-11 to under $650 million last year.

Between 2008 and 2017, state and local health departments lost more than 55,000 jobs — one-fifth of their workforce, a major factor as cities struggle to respond to COVID-19.

“It definitely has made a difference,” said John Auerbach, Trust for America’s Health CEO and a former public health director in Massachusetts.

New York has seen the most COVID-19 cases in the U.S., but numbers are surging in places such as Detroit, where those testing positive nearly tripled in the week between March 28 and Saturday, when officials said the city was approaching 4,000 cases, with 129 deaths. A more robust health system could have done more earlier to track down and isolate people who were exposed, said the city’s former health director, Abdul El-Sayed.

State spending on public health in Michigan dropped 16% from an inflation-adjusted high point of $300 million in 2004, according to a 2018 study.

Some of the funding problems, Canady and other public health advocates believe, stem from a fundamental belief in smaller government among Republican governors, including former Michigan Gov. Rick Snyder, who called for “shared sacrifice” after the state’s auto-dependent economy was battered by the recession.

In Kansas, then-Gov. Sam Brownback ran what he called a “red-state experiment” to cut taxes. State spending on its Public Health Division, outside of federal funds, dropped 28% between 2008 and 2016.

The cuts meant a “shifting of responsibility for services from the state level to the county level,” Democratic Gov. Laura Kelly said in an interview. “And we saw that in public health.”

In Maine, then-Gov. Paul Le Page’s administration stopped replacing public health nurses who were dealing with families in the opioid crisis. The number of nurses fell from around 60 to the low 20s before the Legislature tried to reverse the action.

Although agencies often receive emergency funding when a crisis strikes, the infusion is temporary.

“Decisions are made politically to support something when it becomes an epidemic,” said Derrick Neal, a public health official in Abilene when Ebola surfaced in Texas. “And then as time passes, the funding shrinks.”

In Oklahoma, state funding for the Department of Health still hasn’t returned to its levels of 2014, when a combination of slumping oil prices, tax cuts and corporate breaks punched a giant hole in the state’s budget. When state revenues later improved, the money went to other priorities.

“It’s much easier to cut funding for public health than it is to start taking away benefits from people or access to care for people,” said former state Rep. Doug Cox, an emergency room doctor.

Castrucci said the problem with providing more money only at times of emergency is it doesn’t allow time to recruit and train new workers.

“We waited until the house was on fire before we started interviewing firefighters,” he said.

For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia, and death.

___

Associated Press reporters David Eggert in Lansing, Michigan, Paul Weber in Austin, Texas, John Hanna in Topeka, Kansas, and Sean Murphy in Oklahoma City contributed to this report.

Sara Burnett, The Associated Press

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