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Weekly Newsletter Week 37

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WEEK 37 | SEPTEMBER
WEEKLY NEWSLETTER

 

OVERVIEW

  • Financial Markets & EconomiesOil Price Rally
  • Good to knowIncreasing Corporate Taxes
  • Your portfolio highlights Markel, Solar US Bond Fund, Summit Midstream Partners LP
  • In other news: Brookfield Seeks Up to $15 Billion for Private Equity Fund, Brookfield Said to Revive Sale TDF
Financial Markets & Economies

Investors and businesses alike are content as the U.S. House of Representatives are showing signs of pulling back from the proposed increase in corporate and capital gains taxes. President Biden proposed these tax increases in order to fund his $3.5 trillion social program spending bill. Biden’s initial proposal was to increase corporate taxes from 21% to 28% and capital gains taxes from 20% to 39.6%. The new proposition will increase corporate taxes to 26.5% instead and capital gains to 25%. Read more on increasing corporate taxes in the “good to know” section.

Oil has been on the rise these last few weeks hitting a 6-week high of $73.14 per barrel. The rally was caused by output cuts after Hurricane Ida damaged platforms and onshore support facilities. About 79% of the U.S. offshore energy production remained shut after the hit. According to Goldman Sachs the growing scarcity coupled with strong demand will likely prolong the oil rally. Bank of America went so far to put an estimate of above $100 per barrel in case we experience a colder-than-expected winter this year.

WTI Crude Oil - 1 month price movement
Good to Know

We have touched on the subject of increasing corporate tax and capital gains tax in the previous section. Why are investors content that the U.S. of Representative is likely to pull back from the proposed hike? We can easily conclude that higher taxes lead to lower bottom line/ net profit. A study conducted by the American Economic Association concluded that an increase in corporate tax rates will affect shareholders/ owners/ investor 5 to 10% more than they affect employees.

It is not just stock market investments that are impacted by corporate tax increases because of the decline in corporate profits and thus stock market returns. Higher corporate taxes also result in less foreign direct investments. If investments in general are affected so is growth and innovation. The proposed infrastructure investments on the other hand are much needed in the U.S. That is why a balance between the two seems like a win-win.

Although the infrastructure spending may seem necessary, it is not economically beneficial for the country said economist Adam Millsap. The proposed spending plan will likely make the U.S. economy more like European economies. He is referring here to higher taxes, more regulation, and more government spending. While this is good for many reasons, it stifles innovation which is the thing that differentiates the U.S. economy. Either way, higher taxes are coming, and investors are content that the initial proposal was countered and that lower rates were proposed.

 
Your Portfolio Highlights
 
Markel (MKL) opened a new branch in Paris so to serve small and medium-sized enterprises (SMEs) in the French market. Markel has been focusing for a while now on further expanding and scaling their global footprint in key specialty insurance markets. The company will partner with a regional network of independent brokers in order to offer tailored products to French SMEs. These are: Cyber Risk, Professional Indemnity, and Directors and Officers Liability.

The Paris office will be led by Country Manager, Franziska Geier, and Underwriting Director, Laura Tinturier. Geier and Tinturier plans to drive growth by leveraging local broker relationships and simplifying liability insurance for SMEs with easy-to-understand wordings and streamlined documents, processes, and website.
 
 
The Solar USD Bond Fund (SUBF) is a fixed income fund that primarily invest in high yield corporate bonds of U.S. companies with a minimum S&P credit rating of CCC. The fund may also invest in USD denominated bond funds. The Solar USD Bond Fund aims to generate a stable long term cash flow which is reinvested. The asset allocation is diversified into different asset classes, market sectors and maturities of industrial and consumer products and services companies. The Solar USD Bond Fund analyzes the credit quality of the issuer, the issuer's potential for success, the credit rating, the economic risks and the current and potential future valuation.

The Solar US Bond Fund returned
+1.55% so far this year and has a compound annual growth rate (average yearly return) of about +2.50%. Statistically speaking, the higher the risk the higher the potential return. Since fixed income is less risky than equity (stock) but more so than savings/ deposits, the return lies between the two as well. In the highlight this week is Summit Midstream Partners LP.

Founded in 2009, Summit Midstream Partners LP is a value-driven master limited partnership that is focused on the development, ownership, and operation of midstream energy infrastructure assets. These assets are strategically located in unconventional resource basins, primarily shale formations, in the United States. The company operate natural gas, crude oil and produced water gathering systems. Since its inception the company managed to establish a solid track record when it comes to the acquisition and development of midstream energy infrastructure assets.

Since the Solar US Bond Fund seek for financially healthy companies with good cash flows, Summit Midstream Partners could not have been passed by. The company generates most of its revenue (and cash flow) from long-term and fee-based gathering agreements with its customers. The majority of its gathering agreements are underpinned by areas of mutual interest (AMI) and minimum volume commitments (MVC). This means that any production drilled by one of Summit’s customers within the AMIs will be shipped on their gathering systems while the MVCs are designed to ensure a minimum amount of revenue for the company over the life of each gathering agreement. These agreements and commitments enhance the cash flow stability of Summit and limits their exposure to commodity price fluctuations.


*Please visit the Summit Midstream Partners LP website for more information or click on the image below for their latest presentation.

In Other News
 
We wish you a pleasant weekend and hope you stay safe.

Kind regards, 
Shernel Thielman 
Investment Manager 

www.solar-asset.com | shernel@solar-asset.com 
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