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Martin Tillier

Martin Tillier

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3 Reasons Buying To Buy Untrendy MLPs

Fracking

Master Limited Partnerships (MLPs) are about as fashionable as hot pants. Like the skimpy shorts of the seventies they retained a hard core of fans and have even seen various moments when it looked like they were coming back, but mainstream opinion has remained negative. Now, however, there are three factors that suggest that at the very least the worst could be over, and which may actually result in MLPs seeing a resurgence in popularity.

The argument against MLPs is obvious and well known. The big drop in oil a few years ago and subsequent cost-cutting by energy companies is still hurting. Pipelines are made from steel, a product that looks set for price hikes as the Trump trade wars begin. The rising rate environment, long-signaled and now being enacted by the Fed, makes the yield that is the basis of MLP’s appeal for investors less attractive. And, last but by no means least, a recent rule change by the Federal Energy Regulatory Commission (FERC) sparked another sharp selloff as it was seen as potentially having a negative impact on pricing and/or margins for the pass through partnerships.

That is a depressing list, so it is little wonder that the performance of MLPs has been dismal. In February of last year, the Alerian MLP ETF (AMLP) was at its two-year high. Since then, while the S&P 500 has gained around fifteen percent, AMLP has lost over thirty. The chart isn’t pretty…

(Click to enlarge)

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