With competitive high yields and exposure to an expanding energy industry, master limited partnership exchange traded funds are an attractive option for investors seeking to diversify their investment portfolios.
On the recent webcast, Discover MLPs: Investing in America’s Energy Renaissance, Manish Jain, fixed-income portfolio manager at Zacks Investment Management, explains that MLPs provide investors with exposure to midstream, or energy infrastructure, companies.
John Vaughan, senior V.P. and portfolio strategist at Direxion Investments, also points out that technological advances and the abundant resources in the U.S., namely advances in shale oil extraction, will help support the MLP industry. Moreover, limited infrastructure could lead to growth opportunities in the space ahead.
Due to the company structure, “MLP distribution yields are attractive,” Jain added.
Specifically, Jain points out that MLPs distribution yields averaged 5.18% as of the end of August, compared to 5.96% in high-yield bonds, 3.55% for real estate investment trusts, 2.54% in 10-year Treasuries and 1.96% for the S&P 500.
In addition, the asset class helps investors diversify their portfolios. MLPs show a 0.53 correlation to the S&P 500, a 0.23 correlation to U.S. bonds and a -0.41 correlation to Treasuries. The negative correlation to Treasuries also indicate that MLPs may hold up in a rising rate environment.