Long-Term Investing

Added Vault Energy Trust

To use investor speak, I added a position in VNG.UN, Vault Energy Trust. Here’s why:

  • Low unit price
  • At my purchase price, distribution yield is approx. 18.6%
  • I do believe natural gas prices will rise
  • I also believe the unit price should rise if just for the attractive distribution yield
  • Price to book ratio is 0.8. This can mean that the company is either under-valued, or there’s something wrong with it. They recently lowered their distribution, and their operating expenses are higher than industry-average, but I don’t believe there’s anything wrong there in a big way. Temporary fluctuation due to lower gas prices.

Until recently VNG.UN’s monthly distribution was $0.115; units were trading at $7.50-9.00. Then, due to high operating costs and lower natural gas prices, they lowered the distribution to $0.085 and unit cost dropped to around $5.50 (I bought at $5.35). The yield has very efficiently remained roughly the same.

Then, there are also rumours of the trust getting bought out, but who knows. If it comes true, then I will have bought on the rumour and will probably sell on the news 🙂 Just like the rule goes.

It goes through some seriously volatile price action during the day (15-20 cent swings) but closing price holds up. I’m not too worried about small price fluctuations: they should be smoothed out by the distributions, $17 a month for my 200 units. I think this is a semi-long-term hold (under a year).