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Master limited partnerships or MLPs have struggled for over one year with sliding oil prices. All energy MLP ETFs/ETNs were deep in the red during this timeframe. But things took a turn for the better lately. In the year-to-date frame (as of June 6, 2016), most MLPs are in the green with the highest returns offered by North American Pipeline Fund (TPYP - Free Report) and Alerian Energy Infrastructure ETF (ENFR - Free Report) . Both funds have returned about 24.3% and 22.8%, respectively (read: MLP ETFs to Buy on Dividend Hunt and Oil Price Bounce).
Let’s delve a little deeper into what propelled the space this year.
Jump in Oil Prices: As soon as the oil price staged a rally on easing supply glut concerns, most of the energy MLPs started to regain their lost ground. A declining rig count and better demand/supply balance added to the optimism in the oil patch. Oil prices slipped below $30/ barrel in February and recoiled to $50 in May. U.S. crude ETF United States Oil Fund (USO - Free Report) and Brent crude ETF United States Brent Oil Fund (BNO - Free Report) added 24.8% and 26.6% in the last three months (as of June 6, 2016) (read: Best Oil Rally in 7 Years; 3 Energy ETF Winners).
Lure for Dividends: MLPs are known for their high-yielding nature as these do not pay taxes at the entity level and are thus able to pay out most of their income (more than 90%) in the form of dividends like the REIT firms. While most traditional income asset classes produced miniscule yields, MLPs lured investors with their higher payouts (read: Why Should You Choose REIT ETFs Despite Rate Hike Fears?).
Moreover, an improving U.S. economy calls for another Fed rate hike in the coming months. Though this should result in a substantial rise in yields, the yield on the 10-year U.S. Treasury remained low at 1.73% on June 6, 2016. This miniscule yield offered by Treasury bonds kept high-income investing options like MLPs in fine fettle.
Yes, MLPs underperforms in a rising rate environment as these have to depend on the debt market to finance their operations or fresh projects and higher rates would cut back their profitability. But investors should note that many MLPs use a fixed rate debt for their borrowings.
Even if the Fed acts in the coming months and bond yields surge, MLPs would still be attractive to investors. This is because many MLPs offer extremely hefty yields, which can easily beat out government bond yields. Such high yields at times make up for capital losses incurred by investments (read: 3 Safe High Dividend ETFs to Beat the Volatile Market).
All these pulled things together for MLP ETFs and sent the securities rallying. The largest MLP ETF Alerian MLP ETF (AMLP - Free Report) is now 64.4% high (as of June 6, 2016) from this year’s depth of $7.77 noted in mid February. It is still 21.8% below its 52-week high.
ETFs in Focus
Below we highlight a few ETFs that are in great shape now and should be followed in the days ahead.
This active MLP ETF focuses on the U.S. midstream energy infrastructure sector. It has amassed about $64.4 million in assets so far. The expense ratio of the fund is 1.11% and the dividend yield is as hefty as 18.24% (as of June 6, 2016). The fund advanced about 37.2% in the last three months (as of June 6, 2016).
X-Links Cushing MLP Infrastructure ETN
The underlying index of the note looks to track the performance of about 30 firms which hold mid-stream energy infrastructure assets in North America. MLPN has amassed about $489.3 million in assets and yields about 7.67% annually (as of June 6, 2016). The note was up over 34% in the last three months (as of June 6, 2016).
The $287-million fund has exposure in midstream pipelines and storage facilities. It yields 7.86% annually (as of June 6, 2016). The fund added 24.5% in the last three months (as of June 6, 2016).
Direxion Zacks MLP High Income Shares ETF
The $60.9-million fund yields about 11.49% annually (as of June 6, 2016). The Zacks MLP index selects 25 MLPs using a methodology proprietary to Zacks. The fund returned about 30.6% in the last three months (as of June 6, 2016).
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Inside Surging MLP ETFs
Master limited partnerships or MLPs have struggled for over one year with sliding oil prices. All energy MLP ETFs/ETNs were deep in the red during this timeframe. But things took a turn for the better lately. In the year-to-date frame (as of June 6, 2016), most MLPs are in the green with the highest returns offered by North American Pipeline Fund (TPYP - Free Report) and Alerian Energy Infrastructure ETF (ENFR - Free Report) . Both funds have returned about 24.3% and 22.8%, respectively (read: MLP ETFs to Buy on Dividend Hunt and Oil Price Bounce).
Let’s delve a little deeper into what propelled the space this year.
Jump in Oil Prices: As soon as the oil price staged a rally on easing supply glut concerns, most of the energy MLPs started to regain their lost ground. A declining rig count and better demand/supply balance added to the optimism in the oil patch. Oil prices slipped below $30/ barrel in February and recoiled to $50 in May. U.S. crude ETF United States Oil Fund (USO - Free Report) and Brent crude ETF United States Brent Oil Fund (BNO - Free Report) added 24.8% and 26.6% in the last three months (as of June 6, 2016) (read: Best Oil Rally in 7 Years; 3 Energy ETF Winners).
Lure for Dividends: MLPs are known for their high-yielding nature as these do not pay taxes at the entity level and are thus able to pay out most of their income (more than 90%) in the form of dividends like the REIT firms. While most traditional income asset classes produced miniscule yields, MLPs lured investors with their higher payouts (read: Why Should You Choose REIT ETFs Despite Rate Hike Fears?).
Moreover, an improving U.S. economy calls for another Fed rate hike in the coming months. Though this should result in a substantial rise in yields, the yield on the 10-year U.S. Treasury remained low at 1.73% on June 6, 2016. This miniscule yield offered by Treasury bonds kept high-income investing options like MLPs in fine fettle.
Yes, MLPs underperforms in a rising rate environment as these have to depend on the debt market to finance their operations or fresh projects and higher rates would cut back their profitability. But investors should note that many MLPs use a fixed rate debt for their borrowings.
Even if the Fed acts in the coming months and bond yields surge, MLPs would still be attractive to investors. This is because many MLPs offer extremely hefty yields, which can easily beat out government bond yields. Such high yields at times make up for capital losses incurred by investments (read: 3 Safe High Dividend ETFs to Beat the Volatile Market).
All these pulled things together for MLP ETFs and sent the securities rallying. The largest MLP ETF Alerian MLP ETF (AMLP - Free Report) is now 64.4% high (as of June 6, 2016) from this year’s depth of $7.77 noted in mid February. It is still 21.8% below its 52-week high.
ETFs in Focus
Below we highlight a few ETFs that are in great shape now and should be followed in the days ahead.
InfraCap MLP ETF (AMZA - Free Report)
This active MLP ETF focuses on the U.S. midstream energy infrastructure sector. It has amassed about $64.4 million in assets so far. The expense ratio of the fund is 1.11% and the dividend yield is as hefty as 18.24% (as of June 6, 2016). The fund advanced about 37.2% in the last three months (as of June 6, 2016).
X-Links Cushing MLP Infrastructure ETN
The underlying index of the note looks to track the performance of about 30 firms which hold mid-stream energy infrastructure assets in North America. MLPN has amassed about $489.3 million in assets and yields about 7.67% annually (as of June 6, 2016). The note was up over 34% in the last three months (as of June 6, 2016).
Global X MLP ETF (MLPA - Free Report)
The $287-million fund has exposure in midstream pipelines and storage facilities. It yields 7.86% annually (as of June 6, 2016). The fund added 24.5% in the last three months (as of June 6, 2016).
Direxion Zacks MLP High Income Shares ETF
The $60.9-million fund yields about 11.49% annually (as of June 6, 2016). The Zacks MLP index selects 25 MLPs using a methodology proprietary to Zacks. The fund returned about 30.6% in the last three months (as of June 6, 2016).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>