Master limited partnerships and sector-related exchange traded products surged Tuesday as traders jumped on an oversold segment of the market after months of declines on falling energy prices.
MLPs were among the the best performing exchange traded funds and exchange traded notes on Tuesday, with the RBC Yorkville MLP Distribution Growth Leaders Liquid Index ETN (NYSEArca: YGRO) up 7.4% and UBS ETRACS Alerian MLP Infrastructure Index ETN (NYSEArca: MLPI) 7.0% higher.
Meanwhile, the two largest MLP-related ETPs, the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and Alerian MLP ETF (NYSEArca: AMLP), rose 6.4% and 7.1%, respectively.
MLPs have been among the worst performing assets of the year, with AMJ down 40.4% and AMLP 35.6% lower, as crude oil prices dipped back toward seven-year lows.
However, technical traders may have noticed after months of selling, the MLP-related ETPs were trading near oversold levels. For instance, looking at the relative strength index, a technical momentum indicator that compares the magnitude of recent gains to recent losses, AMJ showed an RSI of 18.7 on Monday, or below the 30 level that suggested the market was oversold.
Energy pipelines and storage companies have fallen off over the past couple of weeks as traders anticipated falling revenues on lower oil prices and declines in distributions, reports Corrie Driebusch for the Wall Street Journal.
At the crux of the matter, investors are worried that a traditionally attractive dividend-paying asset would no longer be able to maintain its steady payouts as U.S. oil output starts to decline after the steep drop-off in crude prices.