ETF Trends
ETF Trends
  • Largest MLP-related ETPs JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and Alerian MLP ETF (NYSEArca: AMLP) have rebounded, but should be approached with caution
  • Selling pressure in the energy market in 2015 spilled over to MLPs as traders feared the low prices would force producers to cutback on production
  • Analysts at Credit Suisse downgraded 12 MLPs on Thursday, including AMJ, AMLP and other well-known MLP exchange traded products

Master limited partnership-related exchange traded products, such as the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and Alerian MLP ETF (NYSEArca: AMLP), the two largest MLP-related ETPs in the space, have been rebounding alongside oil prices, but those recent surges should be approached with caution.

Conventional wisdom previously dictated MLPs are not directly affected by oil prices since the sector acts more like an energy toll road and profits off crude oil flowing threw its pipelines.

However, last year’s selling pressure in the energy market spilled over to MLPs as traders feared the low prices would force producers to cutback on production, which would mean less volume going through MLPs.

On Thursday, analysts at Credit Suisse downgraded 12 MLPs while upgrading just one. Many of the names the bank downgraded are found in AMJ, AMLP and other well-known MLP exchange traded products.

“Balance sheet strength, liquidity, and distribution coverage have become a more important priority. Valuation assumptions have also been challenged. The DDM valuation model has less viability as a valuation tool if the distributions are subject to disruption as does yield spread analysis. Valuation models such as EV/EBITDA and P/DCF showing relative indifference to distribution policy are being resurrected as a way to look at the sector,” according to a Credit Suisse note posted by Amey Stone of Barron’s.

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