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Master Limited Parternship ETFs Endure Rising Rates


Master limited partnership exchange traded funds are holding up and could outpace the broader markets, even as other yield-generating assets weaken in a rising interest rate environment.

Over the past month, the Alerian MLP ETF (AMLP) dropped 1.3% and JPMorgan Alerian MLP Index ETN (AMJ) dipped 0.9%. Meanwhile, the S&P 500 index declined 2.6% in the last month. Year-to-date, AMLP and AMJ have also outperformed the S&P 500, rising 14.2% and 24.4%, respectively, compared to the S&P’s gain of 13.6%. [MLP ETFs: Vulnerable to Rising Rates?]

After the broader markets pulled back on mounting speculation that the Fed will ease back on its bond-purchasing program and rising rates, Credit Suisse believes that it is now a perfect entry point into MLP assets, writes Aaron Levitt for Investopedia.

According to Credit Suisse research, MLPs will still outperform in a rising rate environment. For instance, between mid-2004 and mid-2007, MLPs outpaced both the S&P 500 and yield-oriented asset classes, such as utilities and bonds.

Looking ahead, Credit Suisse also anticipates further growth in the industry, supported by rising energy production across the U.S. and increased demand for energy-related infrastructure.

The U.S. is pulling out more oil than it has since 1991 and more natural gas than it has in its 100-year history, especially with increased “fracking” operations, writes Aimee Duffy for DailyFiance. This increased supply is dependent on midstream infrastructure.

Nevertheless, different MLPs will have varying levels of debt-to-equity and floating rate debt, both of which are more susceptible to rising interest rates. With an exchange traded fund, investors can help diverse risk through holding a basket of MLPs.

Alerian MLP ETF

For more information on master limited partnerships, visit our MLPs category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own AMLP.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.