After being pinched during the bear market in oil prices over the past two years, master limited partnerships (MLPs) and the corresponding exchange traded funds are renewing their status as a favored destination for income investors this year.
Year-to-date, the ALPS Alerian MLP ETF (NYSEArca: AMLP), the largest exchange traded fund holding master limited partnerships (MLPs), is higher by nearly 13% as the energy sector is the best-performing group in the S&P 500. MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
Related: Downtrodden MLP ETFs May Offer Long-Term Opportunity
MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
[related_stories]Other high-yielding options in the MLP exchange traded funds arena include the Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX), InfraCap MLP ETF (NYSEArca: AMZA) and the Tortoise North American Pipeline Fund (NYSEArca: TPYP).
“AMLP has 9.3 billion in total assets and charges a management fee of 0.85% annually. Top holdings include: Enterprise Products Partners LP (EPD), Magellan Midstream Partners LP (MMP), and Energy Transfer Partners LP (ETP),” according to ETF Daily News. “The combination of holdings and their associated weighting within AMLP produces a current yield of 7.60% annually. Dividends are distributed to shareholders in the fund on a quarterly basis.”
MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines. However, as crude oil prices fell off, investors were concerned about the energy industry’s ability to keep pumping oil, which would affect the volume of crude passing through MLPs. With oil prices rebounding, MLPs are also gaining traction.
Related: Master Limited Partnership ETFs Are Back on Trend
“MLPs should also not be viewed as an alternative to fixed-income or with any kind of “bond-like” approach. They carry far different characteristics than bonds and may not be suitable as a substitute for core fixed-income exposure,” adds ETF Daily News.
For more news on MLPs, visit our MLP category.
ALPS Alerian MLP ETF (NYSEArca: AMLP)
Tom Lydon’s clients own shares of AMLP.