Portfolio Update

• New Residential Investment (NYSE: NRZ) added to Aggressive Portfolio. Buy below $17
• Fortress Investment Group (NYSE: FIG) added to Aggressive Portfolio. Buy below $6.50
• CVR Refining (NYSE: CVRR) dropped from Aggressive Portfolio
• Marathon Petroleum (NYSE: MPC) dropped from Aggressive Portfolio
• Western Refining (NYSE: WNR) dropped from Aggressive Portfolio

Here’s how last week went in the energy space. On Labor Day, oil prices fell nearly 4% on worries about Chinese growth and ample supply from OPEC, the North Sea and elsewhere.

On Wednesday, a reporter attending the Barclays Energy Conference featuring many of the industry’s heavyweights described the mood among participants “like a funeral.” Or, as Anadarko Petroleum’s (NYSE: APC) CEO put it in his presentation, “It’s raining, and it’s going to rain for a long time. We’re all going to get wet. A few will drown.” Crude fell 4% again, giving back Tuesday’s gains.

Finally, on Friday, Goldman Sachs dropped its 2016 forecast for West Texas Intermediate from $57 to $45 a barrel, warned oil prices could drop to as little as $20 if output doesn’t drop quickly enough, and downgraded the MLP sector for good measure. The Alerian MLP Index dropped 3%, bringing its losses to more than 6% in September and 37% over the last year. Crude fell almost 3%, reversing the bulk of Thursday’s gain.

Today’s 5% rally in crude on news of declining stockpiles could reverse tomorrow or the next day. But with expectations and sentiment so comprehensively depressed, resilient demand and moderating shale supply could well produce meaningful upside for oil and gas prices over the next year. MLPs, as out of favor now as they were in 2009, would certainly benefit, though likely not to the same extent.

In contrast, expectations for refiners are sky high based on their recently strong margins and record domestic demand for gasoline. And that leaves the sector vulnerable to disappointment as the tailwinds that have propelled refining stocks higher begin to abate. This month’s Sector Spotlight explains in detail why we’re dropping the three refining stocks we’ve been recommending from our portfolios.

They’re being replaced by two new buys: another alternative assets manager heavily marked down of late and an affiliated mortgage real estate investment trust. These businesses are neither risk-free nor easy to understand, but understanding them at today’s prices should be worth your while.

A related In Focus piece makes the obvious case that fundamentals in income-producing financial assets are better now than in the energy space. But we continue to look for the most rewarding income plays without limitations based on industry or tax status.

Portfolio Update will return next month, but in the meantime we continue to publish weekly updates in the MLP Investing Insider. And if you have a question about a recommendation not covered recently there, in this issue or the monthly chat, please post it to Stock Talk.