between
the two nations. Europe appears to be facing a severe shortage
heading into the winter heating season and will need U.S. liquified
natural gas (LNG) to meet demand.
Energy stocks continued to show relative strength in the third
quarter. The sector was one of only two in the S&P 500 to
generate a positive return, rising 2.4% during the period. For the
first nine months of 2022, the sector’s return of 34.9% has
outperformed the broad Index by almost 60 percentage points. The
Materials sector declined 7.1% during the most recent quarter and
is essentially inline with the S&P 500 for the nine-month
period. Our Fund, with exposure to both Energy and Materials,
posted returns on net asset value (NAV) of 1.0% for the quarter and
19.1% year to date. Returns on market price were 0.4% and 19.5%
respectively.
Our holdings in the Refining and Marketing industry group added the
most relative value in the third quarter, followed closely by the
Storage and Transportation group. The Integrated Oil & Gas
group was a modest detractor. Our Materials holdings declined for
the quarter but were essentially flat on a relative basis.
Refiners experienced strong positive estimate revisions in the
third quarter and were the best performing group in the Energy
sector, posting a 7.8% return. Our holdings in this industry group
returned 10.1%, led by our overweight position in Marathon
Petroleum, which increased 21.5% after posting strong
second-quarter earnings backed by strong cash flow generation. The
company continues to reward shareholders with a rising dividend and
a large, ongoing share-buyback program.
In the Storage and Transportation group, the leading contributor
was Cheniere Energy, the largest U.S. LNG production and
transmission company. Cheniere benefited from higher LNG prices and
surging export opportunities to Europe, rising 25.0% during the
third quarter. The company expects to raise its annual dividend 20%
this year, and to have more than $20 billion of available cash for
payouts and investments through 2026. Our underweight positions in
midstream service provider ONEOK and natural gas processor Williams
Companies also bolstered relative performance.
Our Integrated Oil & Gas holdings modestly lagging the
benchmark’s return during the quarter. Cenovus Energy was the
largest relative detractor. Calgary-based Cenovus, whose shares hit
an eight-year high in June 2022, was impacted by the Canadian
dollar’s weakness against the U.S. dollar despite a surge in
year-over-year profits for the second quarter. Suncor, another
Canadian oil producer, also declined for the quarter and weighed
modestly on relative returns.
For the nine months ended September 30, 2022, the total return on
the Fund’s net asset value (“NAV”) per share (with dividends and
capital gains reinvested) was 19.1%. This compares to a total
return of 19.7% for the Fund’s benchmark,