Master limited partnerships or MLPs were under pressure past year. Alerian MLP ETF (F:AMLP) was down 11.1% (as of Jan 8, 2019). But things have taken a turn for the better to start 2020.
Several MLP ETFs have returned in the range of 4% to 6% this year (per xtf.com) against average YTD return of 0.14% offered by all U.S.-listed ETFs (including all asset classes and country ETFs). The S&P 500 is down 0.1% so far this year.
Let’s delve a little deeper into what propelled the MLP space.
Jump in Oil Prices
Oil prices kept strong at the start of 2020 due to the fears of supply disruption on Middle East tensions.New Year’s Eve first witnessed an attack by Iran-backed militias on the U.S. Embassy in Baghdad, which was hit back by a U.S. drone strike near the Baghdad international airport that killed an Iranian military leader. Iran struck back by launching missiles at American bases in Iraq on Jan 7.
With the two Middle East countries’ (Iraq and Iran) joint oil output being more than 20% of the total OPEC output (according to data compiled by Bloomberg), higher chances of supply disruption came into play, pushing up oil prices. As soon as oil price staged a rally, energy MLPs started to look up (read: Good Tidings Await Oil in 2020: 5 Soaring Energy ETFs).
Though tensions subsided a bit now, oil prices may stay steady in 2020. The expansion of the OPEC output cut and the continuation of the move is a positive for the oil patch. Huge U.S. production is still a concern, but then U.S. producers are too cutting the number of oil rigs operating.
Lure of Dividends
MLPs are known for their high-yielding nature as these do not pay taxes at the entity level and are thus able to pay out most of their income (more than 90%) in the form of dividends like the REIT firms. While most traditional income asset classes produced miniscule yields, MLPs lured investors with their higher payouts (read: 5 Multi-Asset ETFs to Counter Volatility & Enjoy Solid Yields).
Moreover, treasury yields have been subdued of late due to a dovish Fed and Middle-East tensions that triggered a safe-haven rally and brought down bond yields. As of Jan 8, 2019, the yield on 10-year U.S. Treasury notes was 1.87%. Since most of the MLPs offer treasury-beating yields, investors can tap the segment. Even if they end up witnessing capital losses, a higher yield would protect their portfolio to a large extent.
Strong Industry Rank
The dual benefits of a stable oil price and a high-yielding nature amid Fed policy easing might favor MLP ETF investing at the current level. Investors should note that the energy and pipeline MLPsbelong to a favorable Zacks industry (placed at the top 26% of 250+ industries).
MLP ETFs That Have Gained the Most This Year
Below we highlight a few MLP ETFs that have soared so far this year.
InfraCap MLP ETF AMZA – Up 6%, Yields 20.38% annually
UBS ETRACS Alerian MLP Index ETN AMU – Up 4.4%, Yields 5.96%
Global X MLP ETF MLPA – Up 4.3%, Yields 4.3%
Dorsey Wright MLP Index ETN BMLP – Up 4.2%, Yields 5.5%
UBS ETRACS Alerian MLP Infrastructure Index ETN MLPI – Up 4.02%, Yields 7.68%
Alerian MLP ETF (F:AMLP) – Up 4%, Yields 8.77%
UBS ETRACS Alerian MLP Infrastructure Index ETN Series B (NYSE:MLPB) – Up 4%, Yields 7.70%
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Global X MLP ETF (MLPA): ETF Research Reports
InfraCap MLP ETF (AMZA): ETF Research Reports
Alerian MLP ETF (AMLP): ETF Research Reports
UBS ETRACS Alerian MLP Infrastructure Index ETN (MLPI): ETF Research Reports
UBS ETRACS Alerian MLP Index ETN (AMU): ETF Research Reports
UBS ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB): ETF Research Reports
Dorsey Wright MLP Index ETN (BMLP): ETF Research Reports
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Zacks Investment Research