High-Yield Infrastructure Equities: Assessing Undervalued Cash-Generating Assets in the NXG Fund

The search for income-generating investments has intensified in 2025 as investors navigate a high-interest-rate environment. Among the most compelling options is the NXG NextGen Infrastructure Income Fund, a closed-end fund managed by Cushing MLP Asset Management, LP - the fund's strategy centers on infrastructure equities, ranging from energy and industrial sectors to sustainable and technology-driven assets, with a focus on current income. With a dividend yield of approximately 13.34% as of recent reports, according to MarketBeat, the fund has attracted attention for its ability to deliver high returns, albeit with inherent risks tied to its structure and valuation.

A High-Yield Proposition with Caveats

NXG's investment objective is to allocate at least 80% of its net assets to infrastructure-related equities and debt securities, according to Markets Insider. This includes energy infrastructure giants like Energy Transfer LP (ET) and Targa Resources Corp (TRGP), which, according to Cushing Asset Management, form a significant portion of its portfolio. The fund's monthly distribution of $0.54 per share—translating to an annualized yield of 13.34%—is a key draw for income-focused investors, according to StockAnalysis's dividend history. However, this yield comes with a caveat: the distributions are estimated to be 100% return of capital, per a PR Newswire release, which could have tax implications for shareholders.

NXG's expense ratio of 1.00% is notably high for a fund that relies on a mix of equity and debt investments, according to PortfolioSlab. This cost is justified by the fund's active management approach, including leverage and a focus on cash-generative infrastructure assets. Yet, the fund's current market price trades at a 2.39% discount to its net asset value, according to CEFConnect, raising questions about its valuation and liquidity dynamics.

Undervalued Cash-Generating Holdings: ET and TRGP

The fund's appeal lies in its exposure to undervalued infrastructure equities. For instance, Energy Transfer LP (ET), a top holding, has a trailing price-to-free cash flow (P/FCF) ratio of 10.04 and an enterprise value-to-free cash flow (EV/FCF) ratio of 20.80, per StockAnalysis's ET statistics. Analysts suggest ET is undervalued by 41%, with an intrinsic value of $28.19 per share, according to AlphaSpread's comparison. This valuation gap reflects strong operational performance: ET generated $5.7 billion in trailing 12-month free cash flow, according to Macrotrends, a metric that underscores its ability to sustain dividends and reinvest in growth projects.

Similarly, Targa Resources Corp (TRGP) is estimated to be undervalued by 23% with an intrinsic value of $191.38 per share, according to AlphaSpread's comparison. While TRGP's P/FCF ratio of 73.64 appears high, per StockAnalysis's TRGP statistics, its quarterly free cash flow of $114.4 million in Q2 2025, according to Macrotrends, demonstrates resilience in capital generation. These metrics highlight how NXG's portfolio companies are positioned to deliver consistent cash flows, even in volatile markets.

!Fund image

Risks and Considerations

Despite its high yield and undervalued holdings, NXG is not without risks. The fund's current valuation is complicated by an ongoing rights offering, which has raised $63 million at a subscription price of $44.92 per share, per a PR Newswire announcement. This capital-raising effort, coupled with a premium valuation relative to its net asset value, suggests that entry points for new investors may be suboptimal, according to StockAnalysis's NXG coverage. Additionally, the fund's heavy reliance on energy infrastructure—accounting for 45.05% of its portfolio, per CEFConnect—exposes it to sector-specific risks, such as regulatory shifts or commodity price swings.

Analyst reports further caution that NXG's focus on income over growth may limit its long-term appreciation potential, according to Yahoo Finance's analysis. While the fund's diversified approach spans traditional and next-gen infrastructure, including renewables and data storage, per Weiss Ratings, its high expense ratio and return-of-capital distributions could erode net returns for investors.

Conclusion: A High-Risk, High-Reward Play

The NXG NextGen Infrastructure Income Fund offers a compelling case for investors seeking high-yield infrastructure equities, particularly those drawn to undervalued cash-generative assets like Energy Transfer LP and Targa Resources Corp. These holdings, with their strong free cash flow metrics and intrinsic value gaps, provide a solid foundation for the fund's income strategy. However, the risks associated with its premium valuation, return-of-capital distributions, and sector concentration cannot be ignored.

For income-oriented investors willing to navigate these complexities, NXG could serve as a strategic addition to a diversified portfolio. Yet, those prioritizing capital preservation or long-term growth may find its risks outweigh its rewards. As always, due diligence on the fund's structure and underlying holdings is essential before committing capital.