MLP Monthly Report: November 2016

Click here to read the November MLP Report offering insights on MLP industry news and the asset class’s yields, valuations, volatility, and correlations.

Summary

News: US LNG exports are predicted to surpass imports for the first time in 60 years. Buckeye LP announced a $1.15 billion purchase of 50% of the GP stake in VTTI Energy.¹ US crude production rose by 0.65% from the last week of September to the last week of October. Q4 MLP distributions grew 0.33% on average quarter-over-quarter. (Source: MLPData and EIA)

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell -4.6% last month on lower prices, but the index remains up 0.8% since the end of last October. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.67%, increasing 43 basis points from 7.24% last month. MLP yields remain higher than the broad market benchmarks for High Yield Bonds (6.29%), Preferreds (5.35%), Emerging Market Bonds (5.28%), and REITs (4.27%). MLP yield spreads versus 10-year Treasuries currently stand at 5.83%, higher long-term average spread levels of 3.54%.² (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, fell this month as MLP share prices declined with a broader energy selloff. Valuations are now at their most attractive levels since June of this year. Since last October, the ratio has fallen approximately -0.5%, closely mirroring the 0.8% appreciation of the Solactive MLP Infrastructure Index, demonstrating the stability of midstream MLP earnings this year, despite low energy prices. (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. Crude prices fell last month, down -2.9% to 47/barrel. We have found that when oil falls below $45/barrel, correlations between MLPs and crude rise significantly. (Source: Bloomberg)

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

Footnotes

1. As of 10/31/16, Buckeye Partners LP was a holding in the Global X MLP ETF (MLPA), with a 5.69% weighting, and the Global X MLP & Energy Infrastructure ETF (MLPX), with a 1.33% weighting.

2. The following indexes are used to represent the yields of their respective asset classes: MLPs – Solactive MLP Infrastructure Index, High Yield Bond – Bloomberg Barclays US Corporate High Yield Index , Preferreds – BofA Merrill Lynch Fixed Rate preferred Securities Index, Emerging Market Bonds – J.P. Morgan EMBI Global Core Index, and REITs – FTSE NAREIT All Equity REITS Total Return Index.

Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Index; Preferreds, BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, J.P. Morgan EMBI Global Core Index; REITs, FTSE NAREIT All Equity REITS Total Return Index; Investment Grade Bonds, iBoxx USD Liquid Investment Grade Index; Equities, S&P 500 Index; Energy, S&P 500 Energy Index; US Bonds, Bloomberg Barclays US Agg Total Return Value Unhedged Index and Crude Oil, Generic 1st ‘CL’ Future.

DEFINITIONS

Solactive MLP Infrastructure Index: The Solactive MLP Infrastructure Index is intended to give investors a means of tracking the performance of the energy infrastructure MLP asset class in the United States. The index is composed of Midstream MLPs engaged in the transportation, storage, and processing of natural resources.

Bloomberg Barclays US Corporate High Yield Index: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

BofA Merrill Lynch Fixed Rate Preferred Securities Index: BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of fixed-rate U.S. dollar-denominated preferred securities issued in the U.S. domestic market.

J.P. Morgan EMBI Global Core Index: J.P. Morgan EMBI Global Core Index is a broad, diverse U.S. dollar-denominated emerging markets debt benchmark that tracks the total return of actively traded external debt instruments in emerging market countries.

FTSE NAREIT All Equity REITS Index: The FTSE NAREIT All Equity REITs index contains all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria.

iBoxx USD Liquid Investment Grade Index: The iBoxx USD Liquid Investment Grade index measures the performance of 600 highly liquid investment grade corporate bonds.

S&P 500 Index: S&P 500 Index tracks the performance of 500 leading U.S. stocks and captures approximately 80% coverage of available U.S. market capitalization. It is widely regarded as the best single gauge of large-cap U.S. equities.

S&P 500 Energy Index: The S&P 500® Energy Index comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.

Bloomberg Barclays US Aggregate Bond Index: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).

Crude Oil: Measured based on the Generic 1st ‘CL’ Future, which is the nearest crude oil future to expiration.

Annualized Volatility: The annualized standard deviation of the daily returns of the security using the closing levels of the index during the 22 index-day period preceding that day. Standard deviation is often used to represent the volatility of an investment. It depicts how widely an investment’s returns vary from the investment’s average return over a certain period.

Correlation: Correlation is a measure that shows how two securities move in relation to each other. A correlation of 1 implies that the securities will exhibit the same price movements. A correlation of 0 means the securities demonstrate completely unrelated price movements.

EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.

Average Spread: Average spread is the average of the excess of the MLPs yield over the 10 year treasuries yield.

MLP Monthly Report: November 2016

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