MLP Monthly Report: December 2016

Click here to read the December MLP Report offering insights on MLP industry news; the asset class’s yields, valuations, volatility, and correlations; and MLPA’s standard performance figures.


News: For the first time since 2008, OPEC formally agreed to a production cut. Saudi Arabia and Iraq, as the largest OPEC producers, took the biggest production cuts, agreeing to pump out 486,000 and 210,000 fewer barrels per day, respectively. Sunoco Logistics LP acquired Energy Transfer Partners, creating the second largest MLP by enterprise value. The Department of Energy announced that the US became a net exporter of natural gas for the first time in 60 years. (Source: Reuters, The Week, RT and Energy Transfer)1

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, gained 2.24% last month. The index has gained 13.05% since the end of last November. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.34%. MLP yields remain higher than the broad market benchmarks for High Yield Bonds (6.57%), Emerging Market Bonds (5.95%), Preferreds (5.61%), and REITs (4.89%). MLP yield spreads versus 10-year Treasuries currently stand at 5.13%, higher than the long-term average of 3.57%. (Source: Bloomberg, AltaVista Research, and Fed Reserve)2

Valuations: The price-to-adjusted-EBITDA ratio, which seeks to provide more color on an MLP’s prices relative to their earnings, increased this month as MLP share prices appreciated, partly due to higher oil prices. Since last November, the ratio has increased approximately 8.81%, largely due to appreciating prices over the last 12 months. (Source: Bloomberg, MLPData, company financials).

Risk: Since the period of heightened volatility in early 2016, volatility has stabilized at just below 20%, two-thirds lower than the peak of MLP market volatility. West Texas Intermediate crude prices increased last month, up 5.51% to $49/barrel. We have found that when oil prices rise, correlations between MLPs and crude decrease. (Source: Bloomberg)

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month- and quarter-end, please click here.