Income-minded investors may be jumping on master limited partnerships and related exchange traded funds as the recent selling pressure opens an attractive entry point.
Among the top performing ETFs on Friday, the Yorkville High Income MLP ETF (NYSEArca: YMLP) increased 4.0%, Direxion Zacks MLP High Income Shares (NYSEArca: ZMLP) gained 3.3%, JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) added 2.2% and Alerian MLP ETF (NYSEArca: AMLP) returned 3.0%.
Some may be attracted to the sector’s robust yields. For instance, according to Morningstar data, YMLP shows a 28.4% 12-month yield, ZMLP has a 14.61% 12-month yield, AMJ comes with a 7.93% 12-month yield and AMLP has a 9.89% 12-month yield.
“Yield-hungry investors have been drawn to MLPs and to exchange-traded products that track baskets of MLPs because MLPs are required to pass at least 90% of their income to their partners/investors,” according to Morningstar analyst Robert Goldsborough. “As such, MLPs – and the ETPs tracking them – generate relatively high yields from such steep distribution rates, thus attracting income investors. Energy-oriented MLPs, which own and operate liquid and gas pipelines along with storage facilities and processing plants that bring product to market, also appeal to investors because of their loose correlation to other income-focused asset classes.”
Bargain hunters may also be jumping on a potentially cheap trade after a year of selling. Over the past year, YMLP plunged 60.5%, ZMLP declined 45.6%, AMJ decreased 36.1% and AMLP retreated 31.0%.
Nevertheless, Deutsche Bank warned that potential investors may want to steer toward stronger players in the sector, such as those with a broader portfolio and solid balance sheets, reports Lee Jackson for 24/7 Wall St.
For instance, Enterprise Products Partners (NYSE: EPD) is one of the largest players in the space. The company also recently raised its distribution 1%. The MLP holds a strong long-term position in the market as it provides many services on the basis of long-term, fixed-fee contracts, which helps insulate the firm against swinging commodity prices. EPD makes up 10.6% of AMLP and 16.7% of AMJ.
EQT Midstream Partners L.P. (NYSE: EQM) is Deutsche Bank’s top midstream play. The partnership provides midstream services through its transmission, storage and gathering systems that service the Marcellus and Utica regions, along with miles of FERC regulated interstate pipelines. EQM makes up 4.4% of AMLP and
Yorkville High Income MLP ETF
Max Chen contributed this article.