The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) --There are four exchange-traded vehicles with sufficient volume that a master limited partnership (MLP) enthusiast should consider.
More specifically, for those investors who do not wish to pick individual securities, there are several diversified MLP products offering the possibility of capital appreciation and the certainty of a solid income stream.
First, a quick primer on energy pipeline partnerships. Energy MLPs typically own the pipelines that transport crude oil and natural gas throughout the country. Although the underlying commodity can affect their price, the more significant driver tends to be genuine supply and demand. Most importantly, investors often buy MLP shares as "income producing properties," since the distributions often range from 5% to 7%.
There are many reasons for investors to avoid individual MLPs, from the tax headaches to the difficulty in identifying the best prospect. Yet the reasons to gain MLP exposure via an exchange-traded vehicle are increasing by the minute.
1. Technical Uptrend.
A number of stock ETFs may have risen above a shorter-term, 50-day moving average. Yet very few have recovered a longer-term 200-day trendline.
UBS MLP Alerian Infrastructure
has done exactly that. What's more, it boasts "higher lows" since the month of August.
2. Attractive Yield Spread.
ALPS Alerian MLP ETF
currently boasts a 6.2% annualized yield. The historical spread between 10-year Treasuries is currently 400 basis points, when it might normally be closer to 250 basis points; the yield spread between AMLP and the
iShares 20+ Year Treasury
is also wider than the historical average. Topping it off, AMLP has genuine potential for capital appreciation, whereas individual Treasury bond debt matures and is currently priced near record lows.
3. Low Correlation With Other High Yield Instruments.
In a play-by-play financial crisis (e.g., subprime 2008, sovereign debt 2011), virtually all risk assets move together. The most troubling aspect of the "risk on-risk-off" phenomenon is the difficulty in diversifying one's portfolio with low-correlating assets.
That said, the
JP Morgan Alerian MLP ETN
has very slight negative correlations with a number of high-yielding investments. The one-year correlation coefficients with
SPDR Select Utilities
iShares JP Morgan Emerging Market Bond
are -.09 and -.30 respectively.
Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.