{"id":51896,"date":"2017-11-11T07:16:56","date_gmt":"2017-11-11T07:16:56","guid":{"rendered":"https:\/\/www.biphoo.com\/bipnews\/?p=51896"},"modified":"2017-11-11T07:16:56","modified_gmt":"2017-11-11T07:16:56","slug":"mlps-poised-for-bounce-but-could-be-short-lived","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/business\/mlps-poised-for-bounce-but-could-be-short-lived.html","title":{"rendered":"MLPs poised for bounce but could be short lived"},"content":{"rendered":"

MLPs poised for bounce but could be short lived<\/span><\/strong><\/span><\/h2>\n

MLPs poised for bounce but could be short lived: Master limited partnerships (MLPs) have been beaten down in 2017, but conditions may be turning in their favor for a short-term bounce by year-end.<\/span><\/p>\n

An MLP is a limited partnership that is publicly traded and, as such, enjoys the benefits of paying no tax at the company level as well as the liquidity that comes with being traded on a major stock exchange.<\/span><\/p>\n

They generally deal in the production, processing, storage and transport of commodities such as oil and natural gas, which makes them sensitive to fluctuations in the price of the underlying commodity. A high dividend yield also makes them attractive in low interest rate environments.<\/span><\/p>\n

But there has been a dislocation this year, as WTI CLcv1 and Brent LCOcv1 crude oil have climbed about 20 percent since the end of August yet MLPs have yet to follow suit.<\/span><\/p>\n

\u201cIf you told me what oil did, interest rates did, credit spreads, all of these things so far this year, I would say MLPs should be up 10 percent this year,\u201d said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.<\/span><\/p>\n

\u201cOil prices going above $55 a barrel, interest rates remaining pretty low, U.S. oil production seems to be pretty strong – if you take those factors and triangulate then MLPs should be a lot higher.\u201d<\/span><\/p>\n

A recent Reuters poll showed oil will likely rally into 2018 with periods of volatility as an anticipated extension of OPEC-led output restrictions offsets higher U.S. production.<\/span><\/p>\n

The Alerian MLP Index .AMZ is down more than 4 percent since Aug. 31 and nearly 15 percent for the year despite the climb in oil prices. That lags well behind the gain of more than 4 percent in the broad S&P 500 .SPX since Aug. 31 and 15 percent gain for the year.<\/span><\/p>\n

That decline has made MLPs cheap and coupled with their high dividend yields in a low interest rate environment, should make them attractive to investors.<\/span><\/p>\n

The average dividend yield of MLPs in the Alerian index stands at 7.9 percent, according to Thomson Reuters data. Enbridge Energy Partners (EEP.N), at 16.08 percent, and Suburban Propane Partners (SPH.N) at 14.47 percent, currently have the highest dividend yields in the index.<\/span><\/p>\n

\u201cYou buy things that are cheap, that have good income, you sit there and collect your dividend checks and kind of wait it out,\u201d said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.<\/span><\/p>\n

\u201cFortunately you get these big dividends and it offsets a lot of the pain.\u201d<\/span><\/p>\n

One factor that could work against MLPs could be seasonality, as investors begin to engage in tax-loss selling by the end of the year, when investors dump underperforming stocks in order to reduce or negate capital gains taxes.<\/span><\/p>\n

The Alerian index has also become less correlated with oil prices themselves, with a 50-day correlation of negative 0.66 to U.S. crude, the biggest disconnect in four years. So as oil prices have increased, MLPs have gone in the other direction.<\/span><\/p>\n

That could indicate investors are not convinced oil prices will continue to rally.<\/span><\/p>\n

(For a graphic on ‘WTI Crude\/Alerian MLP Index Correlation’ click reut.rs\/2zuAhcE)<\/span><\/p>\n

\u201cYou get into these bear super cycles, these long periods where it is really hard for prices to get going because there is just too much supply everywhere and it doesn\u2019t go away,\u201d said John LaForge, Head of Real Asset Strategy at Wells Fargo Investment Institute in Sarasota, Florida.<\/span><\/p>\n

\u201cIf oil prices are not going to be headed above $60 and staying above $60, the growth profile for more and more projects just isn\u2019t there and I\u2019m not going to bid up an MLP.\u201d<\/span><\/p>\n

Source:http:\/\/www.reuters.com\/article\/us-usa-stocks-weekahead\/mlps-poised-for-bounce-but-could-be-short-lived-idUSKBN1DA2KV<\/span><\/p>\n

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