Income investors have always had an affinity for master limited partnerships, or MLPs. These unique vehicles offer exposure to the energy sector through a high yield, equity-like security. Their business models and tax structures are such that they can pass through a great deal of their profits to shareholders in the form of dividends. This makes them coveted for both their unconventional returns vs stocks or bonds in addition to their healthy income streams. Read more
This month’s video takes an in-depth look at the closed-end fund marketplace. Charts include both diversified CEF indexes and single fund names. Overall the trend remains solid, however we are starting to see stretched premiums and tight discounts across the entire spectrum. Risk is high and caution should be warranted at this stage of the cycle. Video recorded after the market close on February 8, 2017.
Donald Trump’s victory as the 45th President of The United States has Wall Street scrambling to identify key investment themes for 2017. One such idea that has been repeated often over the last week is “infrastructure spending.” This thesis is based on the notion that Trump has a builder’s mentality and professional history to back it up. Many are now speculating that he will pour a great deal of time and resources into stimulating the economy through various infrastructure projects.
But what does this mean for a typical investor and how can they represent this concept in their portfolio?
The multi-year plunge in oil and natural gas prices has been partially arrested in 2016 and one high yield investment sector is riding the recovery wave higher. Master limited partnerships, or MLPs, are operators of pipeline, storage, and energy infrastructure assets primarily focused in North America.
These publicly traded entities enjoy a special tax advantage that allows them to return a large portion of their operating income to shareholders in the form of dividends. As such, they are coveted by income investors for their above-average yields and alternative business models compared to conventional dividend stocks or bonds.
The high yield landscape has been a difficult one to navigate over the last year. The pernicious selling in commodities combined with a rocky road for stocks has led to sliding prices in junk bonds, master limited partnerships, and mortgage REITs.
These asset classes have been pilloried for luring in yield-seeking investors, only to have the rug pulled out from under them as credit conditions deteriorated. Hopefully an important lesson has been learned – the higher the yield, the higher the risk of capital invested. Read more