The Benefits of Various MLP Investment Vehicles
Yorkville believes every diversified portfolio should include an allocation to MLPs. In allocating to MLPs, investors need to be aware of the critical differences amongst the structures of the various MLP investment vehicles in the marketplace. There are pros and cons to each structure depending on individual needs, preferences and requirements.
MLPs on the Efficient Frontier
Due to their low correlation to stocks and bonds, MLPs are able to reduce overall portfolio risk and increase portfolio returns. On average, including a 10% allocation to MLPs in a portfolio of stocks and bonds resulted in returns 30% higher per annum and reduced risk (as measured by standard deviation) by 7% lower per annum.
The Importance of Distribution Growth in MLP Investing
Darren discusses the importance of distribution growth to the MLP investment thesis at the Yorkville-sponsored Capital Link MLP Investing Forum.
America's Unconventional Energy Revolution
The United States is set to surpass Russia as the largest energy producer worldwide in 2013. The U.S. has increased its production of oil and natural gas by 40% or by 7 million barrels per day since 2008. This is 10x the growth of both Russia and Saudi Arabia combined over the same time period.
U.S. Energy Infrastructure Forecast Investment
Unconventional shale plays in new energy frontiers like North Dakota are driving U.S. energy production growth. Many of these regions were not on the energy map five years ago. It will require a tremendous investment in essential U.S. energy infrastructure to transport this new production to end users. Yorkville forecasts that an investment of $300-$400 billion will be required to bring these new energy frontiers onto the U.S. energy highway.
MLPs Perform in 6 Rising Rate Environments
Rising interest rates are generally seen as a negative for yield-oriented equities like MLPs. However, Yorkville analyzed recent periods of rising 10-year treasury yields and found that MLPs produced positive total returns in each of the three most recent periods (+85.6%, +13.5%, +1.0%). MLPs are able to overcome increasing rates because MLPs are able to grow their distributions over time, unlike bonds. Of the six periods of rising interest rates over the past twenty years that Yorkville analyzed, MLPs had a positive total return in 5 of them.