MLP Monthly Report: January 2017

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


News: The Solactive MLP Infrastructure Index finished 2016 up 20.1%, outperforming the S&P 500 by 8.1% in 2016. In a recent development regarding the OPEC production cut, non-OPEC producing nations, Mexico, Azerbaijan, Kazakhstan, and Oman all voluntarily agreed to cut production by a total of 258k bpd starting January 2017 and lasting at least 6 months. The EIA projected crude volume will remain flat through Q4 2017 and natural gas volumes will increase 5.8% by the end of the 2017. The U.S. rig count finished 2016 at 658, down 6% from its 2015 figure of 698. (Source: Bloomberg, Econotimes, MLPData, Rigzone)

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, gained 4.19% last month. The index has gained 20.10% since the end of 2015. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.05%. MLP yields remain higher than the broad market benchmarks for High Yield Bonds (6.12%), Emerging Market Bonds (5.83%), Preferreds (5.64%) and REITs (4.77%). MLP yield spreads versus 10-year Treasuries currently stand at 4.60%, higher long-term average of 3.58%.1 (Source: Bloomberg, AltaVista Research, and Fed Reserve)

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, as well as the OPEC agreement. Since the end of 2015, the ratio has increased approximately 14.14%, largely due to appreciating unit 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. Volatility has remained under 20% for the past two months. West Texas Intermediate crude prices increased last month, up 8.66% to $54/barrel. In addition, correlations between MLPs and other asset classes fell considerably as investors weighed the ramifications of the late-November OPEC agreement. We have found that when oil prices rise, correlations between MLPs and crude decrease. (Source: Bloomberg)

For Fund performance, please click on the fund ticker: MLPA, MLPX