NML: High-Yield Energy CEF But Underperforms Peers

The Neuberger Berman Energy Infrastructure and Income Fund (NML) has long been marketed as a high-yield vehicle for energy sector exposure, , according to a Seeking Alpha article. However, despite its aggressive income strategy and focus on energy infrastructure, NML has consistently underperformed its peers, including ETFs like the Alerian MLP ETF (AMLP) and the Energy Select Sector SPDR Fund (XLE), as well as closed-end funds (CEFs) such as the Praetorian Capital Fund LLC, as noted in a MarketBeat roundup. This article dissects the root causes of NML's underperformance and evaluates its potential for a turnaround in a rising energy price environment.

Structural Weaknesses: High Costs and Leverage

, , according to comparison. This cost disparity compounds over time, eroding returns for investors. For instance, , , , as shown in the PortfoliosLab comparison. , per the same PortfoliosLab data.

NML's reliance on leverage exacerbates these challenges. , , according to a CEFConnect profile. While leverage can amplify returns in rising markets, it also magnifies losses during downturns. , . In contrast, ETFs like XLE and AMLP operate without leverage, offering more predictable volatility profiles, as demonstrated in comparison.

Portfolio Concentration and Discount to NAV

NML's portfolio is hyper-focused on energy infrastructure, , according to the CEFConnect profile. , , , per the CEFConnect data. While this concentration aligns with the fund's mandate, it also exposes investors to sector-specific risks. For example, during periods of energy price increases, NML's midstream-focused peers like AMLP outperformed due to their stable cash flow structures, as noted in the MarketBeat roundup.

Compounding these issues is NML's persistent discount to net asset value (NAV). As of 2025, , , as reported in the Seeking Alpha piece. However, this discount remains wider than those of ETFs like XLE, which trade at a premium to NAV. The discount reflects market skepticism about NML's ability to generate alpha, particularly given its high fees and structural inefficiencies, according to the Seeking Alpha analysis.

Strategic Misalignment in a Rising Energy Environment

In a rising energy price environment, NML's underperformance becomes even more pronounced. For example, during the year leading up to January 2025, , while NML lagged with negative returns, as reported in the MarketBeat roundup. This divergence stems from strategic differences: AMLP and XLE focus on midstream MLPs and large-cap energy producers, respectively, which benefit from higher commodity prices through increased throughput and margins. NML, however, has struggled to capitalize on these trends, partly due to its higher costs and less efficient capital structure, as described in the MarketBeat piece.

The fund's manager has also maintained a bearish stance on equities, emphasizing a contrarian approach that prioritizes long-term value creation over short-term gains, according to Q3 2025 letter. While this philosophy may appeal to patient investors, , per the MarketBeat analysis.

Turnaround Potential: A Question of Strategy and Costs

For NML to stage a turnaround, it must address its structural weaknesses. Reducing the expense ratio through operational efficiencies or fee renegotiations would be a critical first step. Additionally, the fund could consider rebalancing its portfolio to include more energy producers or renewable infrastructure assets, , according to the ETFdb comparison.

The recent amendment of NML's revolving credit facility to increase debt financing is a positive sign, according to company page, but leverage must be managed prudently. A shift toward a more diversified energy portfolio, combined with a narrower discount to NAV, could attract new investors and improve liquidity. However, given the fund's historical performance and high costs, such a turnaround would require significant strategic overhauls and market confidence.

Conclusion

NML's high-yield profile and energy infrastructure focus remain appealing in theory, but its structural underperformance-driven by high fees, leverage, . While a turnaround is possible, it hinges on meaningful cost reductions, strategic rebalancing, and a narrowing of the discount to NAV. For now, investors seeking energy exposure may find better value in lower-cost alternatives like AMLP or XLE, as noted in the MarketBeat roundup.