The energy market has fundamentally changed. The collapse of oil demand in the wake of the coronavirus pandemic has sent oil prices plummeting, and markets simply don’t know how to price the future. But this does not impact all energy companies in the same way.
Income-minded investors may find pockets of opportunity in the energy segment through infrastructure-focused Master Limited Partnerships (MLPs) and corporations that generate robust yields. Unlike oil producers and services companies, energy infrastructure companies provide real business-line diversification in the energy sector, as they deal with the transportation, storage, and processing of energy, which are far less reliant on commodity prices.
In the upcoming webcast, Beyond Oil: Finding Opportunity in MLPs, Stacey Morris, Director of Research, Alerian; Paul Baiocchi, Senior Investment Strategy Advisor, ALPS Advisors, Inc.; and Robert Sechan, Managing Director, UBS, will take a closer look at why investors may consider incorporating energy infrastructure MLPs and corporations to enhance an income-focused portfolio.
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 generally correspond 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 can move around. Consequently, MLPs have historically shown a weaker correlation to energy prices over more extended 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 can move around.
Another way to tap into the space is through the Alerian Energy Infrastructure ETF (NYSEArca: ENFR). ENFR tracks the Alerian Midstream Energy Select Index (CME: AMEI). ENFR acts as a type of hybrid energy infrastructure ETF, which could help investors capture some of the high yields from MLPs but limits the tax hit from solely owning MLPs. Importantly, many midstream MLPs and energy infrastructure companies are working on deleveraging their balance sheets.
Financial advisors who are interested in learning more about master limited partnerships can register for the Tuesday, May 12, webcast here.