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Despite being related to the energy space, MLPs put up a brave front last year when oil nosedived to hit dirt cheap prices. The valor was thanks to their low correlation with the underlying commodity and the U.S. shale oil boom. But their winning streak snapped this year with oil prices sliding persistently for the last one-and-a-half years. All energy MLP ETFs/ETNs are deep in the red this year with the highest incurred loss being about 30% by the Yorkville High Income MLP ETF (NYSEARCA: YMLP ) . However, things took a turn for the better to enter the final quarter of the year. The oil price went past its $50 per barrel mark last week for the first time since July 2014, and rebounded from the six-year low level. The revival was backed by signs of falling supplies. A subdued greenback, a declining rig count and better demand/supply balance added to the optimism. All these pulled things together for MLP ETFs and sent the securities rallying. Below we highlight the drivers in detail and see if MLP ETFs are ready for a prolonged run. Declining Energy Output: The Energy Information Administration expects a remarkable drop in U.S. crude production through the middle of next year before a turnaround in late 2016. Oil output is estimated to fall from 9.2 million barrels per day (bpd) in 2015 to 8.9 million bpd in 2016. Low Interest Rate Environment: Since MLPs are publicly traded partnerships generally engaged in the transportation, storage, production or mining of minerals and natural resources, these often operate pipelines or similar energy infrastructure that makes it an interest rate-sensitive sector. With the Fed likely to be dovish this year on faltering global growth and a soft job market in the U.S., interest rates have started to show a downtrend which in turn has pushed the bond yields lower. Quite expectedly, in a low rate environment, MLPs are back on the table helped by a favorable operating backdrop. High-Yielding Options: MLPs catch investors’ eyes as these do not pay taxes at the entity level and are thus able to pay out most of their income (more than 90%) in the form of dividends like the REIT firms. While most traditional income asset classes produced miniscule yields, MLPs lured investors with their higher payouts and stable cash flows (read: Boost Income and Growth with MLP ETFs ). So, if interest rates dive, MLPs will not have to pay higher for the huge chunk of borrowed money which may in turn help them to raise/maintain their dividend payout ratio. Thanks to the above-mentioned developments, nearly all MLP ETFs held up pretty strongly in October. Below we highlight four of those that have returned at least 10% in the last 10 days. InfraCap MLP ETF (NYSEARCA: AMZA ) The active ETF looks to provide a high level of steady income and capital appreciation by providing exposure to a portfolio of high-quality, midstream energy MLPs and related general partners. This $21.4-million ETF charges 95 bps in fees (read: AMZA: First Actively Managed MLP ETF Hits the Market ). With this focus, Magellan Midstream currently occupies the top spot in the fund with roughly 11.68% allocation, followed by Plains All Amer Pipeline LP and Williams Partners LP with 11.56% and 11.47% allocation, respectively. The fund added about 10.9% in the last 10 days and yields 13.28% annually (as of October 9, 2015). UBS ETRACS Alerian Natural Gas MLP Index ETN (NYSEARCA: MLPG ) The note tracks the Alerian Natural Gas MLP Index giving exposure to the 15 largest natural gas infrastructure MLPs. The product manages an asset base of $22.9 million and trades in paltry volumes of roughly 2,000 shares a day. This note also charges 85 basis points a year and has a yield of 7.14%. The product advanced 10.2% in the last 10 days. Yorkville High Income Infrastructure MLP ETF (NYSEARCA: YMLI ) This $39.7-million product looks to track the Solactive High Income Infrastructure MLP Index. This is a rules-based index designed to provide investors a means of tracking the performance of selected infrastructure MLPs, with emphasis on current yield. The product charges 82 bps in fees and yields about 7.67% per year. The fund returned over 10.3% over the last 10 days (as of October 9, 2015). Link to the original post on Zacks.com Scalper1 News
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