MLP Monthly Report: May 2017

The May MLP Monthly Report can be found here, offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.


News: 1) OPEC energy ministers plan to meet with Russia to discuss extending oil output cuts. The 24 countries that agreed to a production cut last year will meet in Vienna on May 25th to decide whether to extend the deal through the rest of 2017. 2) The tax reform proposal by the Trump administration appears positive for MLP unitholders. The plan released by the administration proposes to reduce the top tax rate on pass-through entities (including MLPs) to 15% from the current rate of up to 36.9%. 3) Sunoco Logistics Partners completed its merger with Energy Transfer Partners on April 28th. The combined entities are now operating as Energy Transfer Partners LP under ticker ETP, which began trading as a standalone entity on May 1st. (Source: Rigzone, MLP Data)

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, declined 1.20% last month partly due to lower oil prices. The index has gained 12.34% over the last one-year period. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 6.69%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.63%), Preferreds (5.38%), Emerging Market Bonds (5.35%), and REITs (3.97%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.40%, higher than the long-term average of 3.64%. (Sources: Bloomberg, AltaVista Research, and Fed Reserve)

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, decreased in April compared to March as MLP unit prices fell. Since April 2016, the EV-to-EBITDA ratio has increased approximately 5.1%, as oil prices, and subsequently MLP equities, recovered from previous lows. In addition, from 2015 to 2016, MLP Debt to Adjusted EBITDA ratios fell -6.9% from 4.90x to 4.56x, as MLPs continue to make concerted efforts reduce leverage ratios. (Source: Bloomberg, MLPData, company financials).

Production Output: The Baker Hughes Rig Count increased by 46 rigs compared to last month to 870 rigs. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. US production of crude oil rose to 9,293 in thousands of barrels produced per day in the last week of April from 9199 at the end of March. (Source: Baker Hughes & EIA)

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

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