MLPs hold substantial upside, says expert

Master Limited Partnerships hold significant upside potential after energy prices’ recent sharp drop, expert Morris Beschloss wrote in The Desert Sun.

Lucrative opportunity
Beschloss, an economic analyst and financial writer, emphasized that while MLPs can be lucrative for those familiar with the investment vehicles, they have suffered lately amid oil’s recent plunge.

MLPs could enjoy sharp gains after the energy prices' recent decline.
MLPs could enjoy sharp gains after the energy prices’ recent decline.

MLPs could enjoy sharp gains after the energy prices’ recent decline.

Even while their values have declined, most MLPs have maintained their distributions, he noted. These partnerships have hedged stronger prices for this year, and some have done the same well into 2016. If oil prices rally before these hedges expire, these investment vehicles could recover with an appealing profit.

Growing visibility
Investors have been flocking to MLPs in recent years as U.S. production has grown by leaps and bounds, Beschloss contended. While these partnerships came into existence in the 1980s, they did not generate widespread visibility until fracking became a common term. Since many investors knew little about MLPs, their potential to provide high distributions frequently went unnoticed.

Income potential
These investment vehicles are obligated to pay out the majority of their earnings to their shareholders, which include general partners and limited partners, every quarter.

A perfect example of the high income these partnerships can produce is the Alerian MLP index’s yield, which stood at 6.16 percent at the time of report on Jan. 23, according to The Wall Street Journal. In comparison, 10-year Treasuries yielded less than 2 percent.

Supply-demand fundamentals
However, the Alerian MLP index has fallen 14 percent over the last six months, the media outlet reported. In addition, these partnerships could suffer further declines if their customers start pushing for lower prices, warned Richard Bernstein, who runs Richard Bernstein Advisors in New York.

Simon Lack, founder of investment-advisory SL Advisors, provided a different point of view, according to the news source. He stated that above all else, MLP investors are worried about plunging demand for energy. If anything, energy prices’ recent drop will help stimulate demand, not hinder it.

“Energy prices’ recent drop will help stimulate demand.”

While oil’s recent bear market could help support the case for investing in MLPs, there are several other benefits that make these partnerships appealing. By harnessing these investment vehicles, market participants can enjoy outperformance and tax benefits.

Investors who are intrigued by these particular characteristics might want to take a closer look at MLPs and what the investment vehicles can do for their portfolios.

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