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MLP ETFs At One-Year High: Can the Rally Sustain?

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It seems that the coronavirus blues of the energy sector are slowly passing away. The coronavirus-led global slowdown weighed on oil demand since last year following lockdowns but growing vaccination and falling cases in the United States boosted the oil price. News of free vaccination for adults in India – one of the big consumers of oil – has also proved to be helpful for the oil markets. United States Oil Fund LP (USO - Free Report)  has gained about 43% this year.

The jump in oil prices came despite the rising virus cases in India. Among the various corners of the energy space, MLP companies have displayed particular strength in recent weeks.  Let’s find out what drove the space higher and if the rally will continue.

Inside the Upbeat Drivers

Fitch Ratings expects the operating environment for the North American midstream sector to improve in 2021, thanks to recovering U.S. and Canadian oil & gas production helped by marginally higher prices. If this was not enough, lower capex budgets have boosted cash flow profiles and Fitch expects 2021 median FCF for midstream to be positive.

Entering 2021, much of Fitch’s midstream portfolio will enjoy better liquidity and “a lighter maturity schedule, leaving those issuers better prepared (versus one year ago) for any unexpected economic or severe commodity price weakness.” These factors ensure a more predictable midstream payout.

The major refining and marketing midstream players — being largely insulated to fluctuations in commodity prices — have managed to maintain their distribution levels thus far, by prudent cash management.

We believe that the rally is likely to continue ahead on the back of vaccine rollouts.  Moreover, investors may want to tap the high-yielding products like MLPs in the current low-rate environment. This investing trend is likely to stay strong as long as no further oil demand concerns crop up.

Against this backdrop, investors can bet on the following MLP ETFs. These ETFs have been hovering around a 52-week high.             

InfraCap MLP ETF (AMZA - Free Report)

The InfraCap MLP ETF seeks total return primarily through investments in equity securities of publicly traded master limited partnerships and limited liability companies taxed as partnerships. The fund charges 201 bps in fees annually and yields 9.12% annually.

Alerian MLP ETF (AMLP - Free Report)

The underlying Alerian MLP Infrastructure Index is a capitalization-weighted composite of energy infrastructure Master Limited Partnerships that earn the majority of their cash flow from the transportation, storage, and processing of energy commodities. The fund charges 90 bps in fees and yields 7.68% annually.

Cushing MLP HI Income ETN

The Cushing MLP High Income Index tracks the performance of 30 Master Limited Partnerships which hold energy and shipping assets in North America. The fund charges 85 bps in fees.

Global X MLP ETF (MLPA - Free Report)

The underlying Solactive MLP Infrastructure Index tracks the price movements in shares of companies that are structured as MLP and are engaged in own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering, and processing natural gas, natural gas liquids, crude oil or refined products. The fund charges 46 bps in fees.

Alerian MLP Index ETN JP Morgan (AMJ - Free Report)

The Alerian MLP Index is a cap-weighted, float-adjusted index created to provide a complete benchmark for investors to track the energy MLP sector. The note charges 85 bps in fees.

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