As income-minded investors look for ways to diversify their portfolio, one may consider master limited partnerships or MLP-related exchange traded funds to enhance yield generation.
“It’s an asset class if you want to call it that, that sort of been under-owned in recent years,” Paul Baiocchi, Senior Sales Support Analyst, SS&C, ALPS Advisors, said at the Inside ETFs conference.
“If you look at them now relative to other income streams, whether it be REITs, whether it be bonds, whether it be utilities, they look really cheap, so they screen really cheap relative to those other categories, but also historically, they have really low correlations to those other income streams. So, investors who are a little bit concerned about the income from the equity sleeve of their portfolio are starting to find their way back into the MLP space.
For example, the ALPS Alerian MLP ETF (NYSEArca: AMLP) has been a popular way for investors to access the MLP space. AMLP seeks investment results that correspond generally to the price and yield performance of its underlying index, the Alerian MLP Infrastructure Index. The index is comprised of energy infrastructure MLPs that earn a majority of their cash flow from the transportation, storage, and processing of energy commodities.
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. Consequently, 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.
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.
Watch Paul Baiocchi Talk The Importance Of MLPs:
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