NEW YORK (TheStreet) -- Master Limited Partnerships, low-taxed investment vehicles that trade as stocks and are generally formed around energy-related businesses, may be looking expensive relative to historic levels, but owing to their insulation from emerging market turmoil, they continue to be comparatively safe and attractive investments, say fund managers.
The benchmark Alerian MLP Index soared a whopping 28% last year, just behind the S&P 500's exceptional return of 32% as investors chased yields in these relatively safe and steady, tax-insulated stocks.
Managers at the five-Star, Chicago-based Advisory Research MLP & Energy Income Fund (INFIX) say MLPs are fairly valued and should produce positive annual returns of 6% to 10% over the next five to 10 years. In other words, while MLPs are actually looking expensive compared to their historical prices, as multiples are at levels not seen since Spring 2011, they're still looking cheap relative to investment-grade corporate bonds.
Gains by MLPs are due largely to increased U.S. energy production as well as the uptick in U.S. infrastructure expansion, two trends fueled by low-funding costs amid rock-bottom interest rates.
"It is hard for investors to find income and growth in today's investment environment," Jim Cunnane, an Advisory research fund manager told TheStreet in a phone interview last week. "MLPs and energy infrastructure companies offer both." Advisory Research manages more than $11 billion in assets, and its MLP and Energy Income Fund oversees $500 million.
Infrastructure assets tend to generate solid and stable levels of cash, allowing such businesses to satisfy the requirement of MLPs that 90% of their net income be generated by a natural resource. MLPs are also not subject to income tax, thereby allowing them to generate exceptionally high yields.