If your investment objective relies heavily on income-paying assets and dividends, chances are good that you have either ventured into the realm of master limited partnerships (MLPs). If you haven’t, chances are high that you have at least considered them. We have covered MLPs in many instances and the prices of these in many cases are very close to 52-week or all-time highs. Now we have a fresh report from Fitch Ratings showing that the ratings agency expects more growth in the MLP sector over the next several years. The drivers are yield-hungry investors with favorably taxed payouts.
Fitch Ratings expects continued strong growth of master limited partnerships (MLPs) in the energy sector over the next several years, driven by the ongoing hunt for yield in an era of rock bottom interest rates and MLPs’ relatively large and tax-advantaged payouts. It said, “MLP growth will also continue to be driven by the high levels of infrastructure spending associated with U.S. shale plays and increased acceptance of what types of businesses can be fit into an MLP structure.” Fitch went on to show the top 10 structural and operating differences between MLP and corporate issuers based upon tax efficiency, asset mix, distribution policy, financial flexibility, cost of capital, governance, and growth strategies.
Most recently we featured some Credit Suisse research pounding the table for its top picks in this sector for 2013. Earlier this year, Credit Suisse called for a big catch-up rally to come in 2013 and they nailed that call since these have done very well so far this year. The good news is that there are two very liquid ETFs: We also recently showed how Global X Funds launched the Junior MLP ETF (NYSEMKT: MLPJ) to track the smaller-cap MLPs.
We would note that there are several closed-end funds and exchange-traded funds (ETFs) which are large and very liquid for investors here following the MLP theme. Many investors use the Kayne Anderson Partners MLP Investment Co. (NYSE: KYN), which is a closed-end fund that employs some leverage in its portfolio. The two big exchange-traded products here are the JPMorgan Alerian Index ETN (NYSEMKT: AMJ) and ALPS Alerian MLP (NYSEMKT: AMLP).
Jon C. Ogg