Navigating Energy Volatility with NML: A Steady Hand in Shifting Markets

As geopolitical tensions and energy market swings dominate headlines, investors seeking resilience in uncertainty are turning to infrastructure-focused vehicles like the Neuberger Berman Energy Infrastructure and Income Fund (NYSE: NML). This closed-end fund has positioned itself as a defensive play through its focus on stable cash flows from energy infrastructure assets, even as oil prices oscillate and global supply dynamics shift. Let's dissect why NML's blend of diversified exposure and robust distribution coverage makes it a compelling choice for risk-averse investors.

The Case for Infrastructure Resilience

Energy infrastructure assets—such as pipelines, storage facilities, and renewable energy projects—are the backbone of global energy systems. Unlike pure commodity plays, these assets generate steady revenue streams tied to long-term contracts, making them less sensitive to short-term price swings. NML's portfolio, with 118.5% allocated to the Energy sector (leveraged to amplify returns), leans heavily into this stability.

The fund's top holdings include industry stalwarts like Targa Resources Corp (14.48% of assets) and Energy Transfer LP (14.26%), which operate critical midstream infrastructure. These companies benefit from inelastic demand for energy transportation and storage, even during market downturns. For instance, the recent Iran-Israel ceasefire has eased fears of supply disruptions in the Middle East, reducing volatility in oil prices—a scenario where NML's infrastructure-heavy portfolio thrives.

Distribution Stability Amid Volatility

A cornerstone of NML's appeal is its consistent monthly distribution of $0.0584 per share, yielding 7.36% annually based on NAV as of June 2025. This stability is underpinned by the fund's diversified revenue streams:

• Diversified Income Sources: 80% of assets are in energy infrastructure equities and fixed-income securities, including master limited partnerships (MLPs) and utilities.
• Strong Coverage Ratio: The fund's distributable cash flow comfortably covers its payouts, with leverage-aided distributable cash flow at 2x current distributions.

Critically, NML's distribution includes a non-taxable return of capital component, which reduces investors' cost basis and defers capital gains tax. While this complicates short-term tax planning, it aligns with the fund's long-term total return strategy.

Leverage as a Double-Edged Sword, Managed Prudently

NML employs 16.56% effective leverage—a strategy that amplifies returns in rising markets but demands careful risk management. The fund's conservative approach is evident in its focus on companies with improved debt levels and strong distributable cash flow coverage. For example, its top MLP holdings like Enterprise Products Partners LP and Western Midstream Partners LP have deleveraged in recent years, reducing balance sheet risks.

The fund's NAV discount to share price (-11.13% as of June 2025) also creates a margin of safety for investors. While discounts can fluctuate, they reflect market skepticism about closed-end funds' ability to sustain distributions—a perception NML's track record defies.

Geopolitical Tailwinds and Risks Mitigated

Geopolitical events like the Iran-Israel ceasefire highlight NML's strategic advantage. Reduced supply disruption risks in key regions stabilize energy prices, benefiting infrastructure assets that rely on steady demand. Meanwhile, NML's global exposure—125.64% in U.S. equities, plus allocations to Canada and Finland—buffers against regional instability.

The fund's portfolio also includes renewables exposure (e.g., NextEra Energy holdings), aligning with global energy transition policies. This diversification ensures NML isn't overly reliant on fossil fuels, a critical defense against regulatory shifts like the U.S. Inflation Reduction Act.

Is NML Right for Your Portfolio?

Investors seeking steady income and downside protection in energy markets should consider NML. Its 8.28% yield based on share price (as of June 2025) offers a compelling entry point, especially given the fund's historically consistent distributions. However, three caveats apply:

1. Leverage Risks: While managed prudently, leverage magnifies losses during energy sector declines.
2. Tax Complexity: The return of capital component requires tracking adjusted cost basis.
3. Sector Concentration: Over 118% Energy exposure is a double-edged sword—rewarding in stable markets but vulnerable to broader sector downturns.

Final Verdict: A Defensive Gem for Energy Investors

In an era of geopolitical uncertainty and volatile commodity prices, NML stands out for its infrastructure-driven stability and cash flow resilience. Its diversified portfolio, prudent leverage use, and consistent distributions make it a viable defensive holding for income-focused investors. For those willing to navigate its tax nuances and sector concentration, NML offers a rare blend of yield and safety in a turbulent energy landscape.

Actionable Takeaway: Consider a position in NML as a core holding for energy exposure, especially if you believe geopolitical risks will persist but not derail long-term energy demand. Pair it with broader market hedges for balanced portfolio diversification.

This analysis underscores NML's role as a strategic tool for investors seeking to navigate energy volatility without sacrificing income. The fund's infrastructure focus and disciplined risk management position it well to weather the storms ahead.