As market conditions shift, ETF investors and financial advisors should take a harder look at their investment portfolios and consider the changes needed to adapt to the environment ahead.
“2018 is the worst year for a 60/40 portfolio since 2011, so far through the first 10 months of the year, and a few things that are performing quite well in that environment are real assets,” Jeremy Held, Director of Research at ALP, said at the Charles Schwab IMPACT 2018 conference. “Things like commodities, MLPs, even real estate.”
Held specifically highlighted the strength in MLPs, arguing that the asset category holds up well during inflationary periods as well as showing resilience through rising rate environments. Consequently, investors may look to something like the ALPS Alerian MLP ETF (NYSEArca: AMLP), the largest and most liquid MLP-related ETF on the market. AMLP provides diversified, transparent exposure to a basket of infrastructure MLPs and provides yields in the 6% to 8% range on a consistent basis.
In a rising rate or inflationary environment, MLPs are able to grow distribution and help investors generate attractive yields to offset the downsides, especially in respect to other equity income-oriented asset classes.
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.
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