The ALPS Alerian MLP ETF (AMLP) , the largest exchange traded fund holding master limited partnerships (MLPs), is getting a lift this year from higher oil prices and investors’ thirst for higher-yielding assets.
MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
Other high-yielding options in the MLP exchange traded funds arena include the Global X MLP & Energy Infrastructure ETF (MLPX) , InfraCap MLP ETF (AMZA) and the Tortoise North American Pipeline Fund (TPYP) .
To qualify as an MLP, the companies pass through at least 90% of their income to investors, making the assets an attractive yield-generating investment.
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MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
“First, correlations tend to mean-revert, and it’s not a big leap to suggest that MLPs and crude oil will decouple to some extent. The three month correlation of daily returns is more sensitive than the 12 month correlation we’ve used, and it shows that the relationship has weakened in recent weeks,” according to Investing.com.
As witnessed in other areas of the market, dividend growth stocks and ETFs have outperformed in the long run, whereas dividend cutters have historically underperformed. AMLP outperformed many other MLP-related exchange traded products for the past year and 3-year periods.
“MLPs have demonstrated a more meaningful relationship with stocks both recently and over twenty years. So the more pertinent question for the potential MLP investor is to ask where stocks are going, but perhaps that seems both obvious and unanswerable, so attention shifts back to crude,” adds Investing.com.
For more news on MLPs, visit our MLP category .
Global X MLP & Energy Infrastructure ETF
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.