Frac Sand Feeding Frenzy
As oil prices have recovered, doubling off their lows and stabilizing around $50 per barrel, drilling activity continues to increase in the U.S., making frac sand producers prime beneficiaries of this cyclical rebound. This is evidenced by the growth in demand for frac sand, which is forecast to reach record levels. To learn more about the future for the frac sand industry, read this month's MLP Beat.
Growth Means Quality for MLPs
In the broader equity markets, “growth” stocks are generally best described as companies with strong earnings prospects, high P/E ratios, and low dividend yields. They are typically associated with additional risk, given their high valuations and momentum oriented nature. In the MLP asset class, however, the Growth MLPs are a much different breed.
MLPs: Come for the Yield, Stay for the Growth
Most investors are attracted to MLPs for their high yields. Yorkville’s analysis identifies price appreciation as the most important driver of total returns for the asset class. Historically, 71% of Growth MLP returns have come from price appreciation rather than current income.
2017 - The Return of Growth MLPs
While growth MLPs underperformed in 2016, history suggests that higher distribution growth may lead to outsized returns versus the asset class. To learn why Yorkville believes there may be a re-positioning into growth MLPs from value (high yielding) MLPs in 2017, read this month's MLP Beat.
MLPs Poised to Benefit From OPEC Cuts
OPEC's agreement to reduce production serves to accelerate the movement in the global oil market towards equilibrium, regardless of the outcome of the “Non-OPEC” meeting in Vienna. To learn more about the global oil market's rebalancing, read this month's MLP Beat.
Trump Card: Energy Deregulation
The U.S. populace voted, and then the U.S. equity markets endorsed Trump as President on November 9, 2016. To see what his presidency potentially means for U.S. energy infrastructure companies, read this month’s MLP Beat.
The OPEC “Put”
OPEC's recent decision to cut production its oil production from all-time highs may establish a new floor for oil prices - the OPEC “put”.
Does Natural Gas Deserve More Love?
The prospects for natural gas represents one of the most underrated stories in energy. To learn why natural gas may be set up for a multi-year bullish run, read this month’s MLP Beat.
All About that Basin
U.S. rig counts have begun the process of bottoming. To learn which basins are most likely to benefit from the increase in drilling activity and subsequent production increases, read this month’s beat.
A Sandstorm is Brewing
Frac Sand consumption increased ~30x between 2000-2014 and is potentially poised to explode again.
Earnings Underscore Different Business Models
For the first quarter of 2016, Infrastructure MLPs grew distributions 8.4% compared to Commodity MLPs which cut distributions -17.8%. All five Commodity MLP sectors showed negative distribution growth for the quarter. In contrast, Infrastructure MLPs increased distributions across all four sectors. For detailed analysis of quarterly MLP results, read this month’s MLP beat.
Declining Cost of Debt Fuels MLP Equity Rally
The recent rally in MLP equities can be attributed to the declining cost of debt. As MLP bond yields go down, MLP equity prices go up. To find out why the cost of capital is so important in driving MLP growth read this month’s MLP Beat.
To Freeze Or Not To Freeze...Does It Matter?
To find out why Yorkville thinks the April 17th meeting between OPEC and non-OPEC members is meaningless, read this month's MLP Beat.
Oil Fuels MLP Rebound
After a tough start to 2016, MLPs found their footing mid-February. MLPs declined 20% in the first half of the month before bouncing 21.5% and finished with a decline of only -1.5% on the month. The MLP rally was led by oil, which popped 29% from its lows set on February 11th. Earnings season is in full swing and it provides investors with an excellent opportunity to re-examine the fundamentals of the asset class. To find out more about MLPs’ earnings results, read this month’s MLP Beat.
MLP Recovery Playbook
MLPs were down -26.7% in the first three weeks of January, pushing yields on infrastructure MLPs to 12%. This is near all-time highs of 14% reached in 2008. As MLP yields once again approach historic highs, we looked back to 2009 to develop a blueprint for how to invest in an MLP recovery. To read how to best position your MLP portfolio for a rebound read this month's MLP Beat.
MLP Model Broken? Not So Fast
MLPs dropped -33.9% in 2015. This marked the second worse performing year for MLPs since the inception of the asset class; the only worse year was 2008 when MLPs declined by -39.7%. All 10 sectors were negative for the year and 6 sectors declined by more than 40%. In light of this terrible performance, Yorkville analyzed the sustainability of the MLP business model.
MLPs Earnings Scorecard 3Q15
The third quarter MLP earnings season has concluded and Yorkville analyzed results across the entire asset class. Yorkville focused on distribution per share (“DPS”) given the importance of distributions and distribution growth to the MLP model. Yorkville analyzed year-over-year growth, the percent of MLPs that met or missed analysts’ DPS estimates, and analysts’ forecasts for DPS growth in 2016. We compared these results across all MLP sectors.
The New Normal For MLPs
Yorkville analyzed MLP distribution growth and yields from 2001-2014 to determine where MLPs have traded based on yield relative to distribution growth. We applied historical relationships to today’s fundamental environment to establish the “New Normal”.
Bond Stability Implies Equity Selling Overdone
MLPs just experienced the worst performing quarter since the inception of the asset class in 1987. However, MLP bond prices are telling a different story.
MLP Yield Spreads Supportive of a Recovery
MLPs continue their slide and are now down 15.5% year-to-date and down 27% from their peak in August 2014 (as of 8/31/2015). MLPs have pulled back -33% from their peak of last year through the trough of August 24th, 2015. Yorkville analyzed every pullback in the history of the MLP asset class to help provide context for the current pullback.
MLP Valuations Point to Attractive Entry Point
MLPs are currently yielding 7.2%, while the U.S. ten year yield sits at 2.2%. This difference represents a current spread of 505 basis points. When this spread has been greater than 500 basis points, MLPs produced positive returns over the next twelve months 100% of the time since 1996.
Rising Rates – A Positive or Negative for MLPs?
There is a widely held belief that MLPs are negatively impacted by increases in interest rates. Yorkville has analyzed MLPs’ price sensitivity to interest rates during every rising interest rate environment and Federal Reserve tightening cycle since 1992. To find out whether rising rates are positive or negative for MLPs, read this month’s MLP Beat.
MLP Investing 101: Metrics that Matter
MLP businesses are different from traditional stocks. As a result, measuring an MLP’s valuation in terms of standard metrics, like a P/E ratio, is of limited use. In evaluating MLPs, Yorkville looks at various fundamental factors including distribution growth, distribution coverage, intrinsic yield, and leverage, among others. This edition examines what metrics matter when analyzing MLPs.
Navigating the MLP Asset Class
Since 2000, the best MLP in a given quarter has averaged a gain of 57 percent. Meanwhile, the worst MLP has lost -41%. This represents an average difference of 98 percent per quarter. In 2014 alone, there was a performance difference between the top and bottom MLPs of at least 49% in each sector. To learn more about navigating the MLP asset class, read this month's MLP Beat.
MLPs: The Non-Cyclical Energy Investment
MLP prices have been gyrating greatly in the past few months -- mostly going down. Naturally, we all want to understand what is happening. Yorkville's fundamental analysis, based on nearly three decades of researching and investing in the MLP asset class leads us to several conclusions.
All Energy Stocks Are Not Created Equally
Over the course of the significant decline in the price of oil, investors in energy stocks have generally struggled. The S&P Exploration and Production industry has lost almost 40 percent. However, Infrastructure/Midstream MLPs, as represented by the Yorkville Infrastructure MLP Universe Index, have managed to weather the storm, only falling by 2 percent.
Drilling Deeper Into Oil
Global oil production has risen by 3 million barrels per day over the past three years, resulting in an oversupplied oil market. The majority of the growth in production has come from U.S. shale producers. The current oversupply of oil will be remedied by a decrease in production by those same producers who were primarily responsible for the growth of production in the past few years.
Stay Focused on Fundamentals in 2015
Even though MLPs have declined in the recent months, fundamentals remain strong. In the fourth quarter 2014, 95% of all MLPs maintained or increased distributions at an average rate of 5.6%. As long as distributions are being held stable and growing, bank the growing income streams and don’t get distracted by the noise of short-term price fluctuations.
Oil Declines, MLP Fundamentals Don’t
As oil prices have declined by 35% to below $70 per barrel following OPEC’s decision to maintain current production at 30 million barrels per day, MLP prices have declined by roughly 10% in value from 11/27 through Monday’s close (12/1). We believe this selling to be driven by market participants who do not fully understand MLP fundamentals. Most MLPs have little to no exposure to oil and/or natural gas prices, meaning cash flows, and therefore distributions, are likely to remain unaffected.
MLPs Offer Attractive Risk/Return Profile
The most predictive metric in terms of valuing master limited partnerships has historically been MLPs’ distribution yield. Based on current MLP yields and spreads relative to alternative income-producing asset classes, master limited partnerships offer an attractive risk/reward profile at current prices.
MLPs Plunge - Not Tied to Fundamentals
From September 1st through October 14th, MLPs suffered their worst pullback since the financial crisis, losing 16 percent in value. The drop in MLPs coincided with a similar 22 percent drop in oil prices. However, MLPs have historically exhibited little to no correlation to crude oil over the longer term. Fundamentally, MLP distributions have consistently grown amidst fluctuating prices for both oil and natural gas.
General Partners - The Kings of Growth
Yorkville invests in MLP general partners because not only do you gain exposure to the underlying hard assets, but you get supercharged distribution growth. Time and time again, this distribution growth has proven to greatly outweigh the current yields as a primary driver of total returns.
MLP Pullbacks - Buy The Dips
In order to understand and properly contextualize the most recent pullback in MLPs, we analyzed significant price declines experienced by MLP universe since 2009. Our conclusion comes as no surprise when one looks at the strong fundamentals underpinning the asset class – buy the dips.
U.S. Energy Exports Benefit MLPs
The Commerce Department's recent ruling regarding condensate exports prompted new discussions about the ban on exports of unrefined crude oil. A potential lifting of this ban, or even continued expansion of qualifying types of refined products for export, could mean more opportunities for MLPs. Based on estimates from the IEA, the United States will surpass Russia and Saudi Arabia as the world's top oil producer in a few years.
A Guide On How Best To Invest In MLPs
With over 70 MLP funds and 3 different structures, there are various ways for investors to gain exposure to the MLP asset class. Yorkville analyzes the pros and cons of each structure in its latest MLP beat.
Optimize Portfolio Returns with MLPs
From 2000 to 2013, a 10% allocation to MLPs in a stock and bond portfolio resulted in an average of +30% greater annual returns with -7% less risk. Find out more about how MLPs optimize portfolio returns in Yorkville's latest MLP Beat.
Price Appreciation Powers MLP Returns
Although MLPs offer attractive current income to investors, a Yorkville analysis found that from 2000 to 2013, price appreciation (primarily driven by growth in distributions) accounted for the vast majority of total returns.
Yorkville Unveils MLP Distribution Growth Leaders
Distribution growth is the cornerstone that underpins the MLP investment thesis. Distribution growth: 1. Provides a hedge against inflation; 2. Protects against rising interest rates; 3. Drives greater income security; and 4. Powers price appreciation. Yorkville explores the importance of distribution growth to successful MLP investing in the current edition of our MLP Beat.
Distribution Cut: The Death Knell of an MLP
Distribution stability is one of the most important criterion in making MLP investments. When investing in MLPs, stability of distributions is essential for the preservation of income and capital.
MLPs: Finding Value in 2014
Despite rising interest rates, MLPs returned +28.6% in 2013. This return bested other income alternatives including REITs and Utilities. Distribution growth acts as a hedge against rising interest rates and Yorkville believes the fundamentals for distribution growth remain strong in the MLP asset class. Find out where Yorkville sees value in MLPs in 2014 in our latest MLP beat.
LNG Export: New Growth Opportunity for MLPs
The U.S. recently passed Russia as the world's largest producer of natural gas and U.S. gas production is expected to continue to grow in the coming years. It has been estimated that global demand for LNG will double by 2025. MLPs should benefit from cheap U.S. natural gas prices through the construction of LNG export terminals and infrastructure. Find out more in our latest MLP beat.
MLPs A Trillion Dollar Asset Class
The total market capitalization of the MLP asset class is currently $430B. It has grown at a 30% CAGR since 2000. We believe that IPOs, acquisitions, and spending on essential energy infrastructure will make MLPs a trillion dollar asset class in the next 20 years.
MLPs: Pipeline to Profits in U.S. Energy Boom
The United States is set to surpass Russia as the largest energy producer worldwide in 2013. Our third quarter MLP Beat provides a deeper look into the implications of this U.S. energy production bonanza for MLPs and MLP distribution growth.
U.S. Growth Industries: Railroads (1800s) and MLPs (2000s)
Railroads were a primary driver of economic growth in the 19th century. In many ways, railroads of the mid to late 19th century are similar to Master Limited Partnerships (MLPs) of today. Yorkville believes that MLPs are positioned to fill that role in the 21st century.
MLP Distribution Growth Continues Unabated
Yorkville introduces two new fundamental metrics that zero in on the investment thesis behind MLPs - stable and growing distributions. Our two new ratios are the Yorkville Distribution Stability Score and Intrinsic Distribution Growth Rate.
Variable Distributions MLPs: Understanding the Opportunities & Risks
There has been a tremendous amount of media and investor attention around a newly popular structure of MLPs that pay a variable quarterly distribution. Yorkville has found there is a wide chasm between interest and understanding when it comes to this new MLP structure. In an effort to help bridge this chasm, Yorkville is pleased to introduce the first ever index on this exciting and rapidly expanding segment of the MLP asset class.
MLPs Hold Strong in a Rising Rate Environment
MLPs significantly outperformed REITs and Utilities in May as U.S. interest rates spiked. The yield on the Ten-Year Treasury increased more than 27% in May. REITs dropped -6% and Utilities lost -9%.
MLP Parity Act: A Congressional Seal of Approval
On April 24th, the Master Limited Partnership Parity Act was reintroduced in Congress. The MLP Parity Act would expand sources of income qualifying for the MLP structure to include renewable energy. To find out the implications of this bill for both the MLP structure and the future of green energy, click here.
The Investment Case for MLPs: Distribution Growth
From 2000 to 2012, MLPs grew distributions by 7% per annum. In Q1 2013, MLPs grew their distributions by 7.8% QoQ annualized. To find out why we think this distribution growth will continue, read Yorkville's latest MLP beat here.
America's Unconventional Energy Revolution
Investing in US energy infrastructure through Master Limited Partnerships has returned 13.6% in 2013 through end of February. To find out why we think these returns are sustainable, read Yorkville's latest MLP beat here.
MLPs Soar on Strong Fundamentals
The 12% MLP rally in January was not a major surprise to regular readers of Yorkville Capital's MLP Beat. In fact last issue proclaimed MLP fundamentals have never been better, despite a tough 2012. In this issue we go inside the MLP breakout to examine performance leaders and laggards. As always, please contact us with any questions or suggestions. Click here to access the January 2013 MLP beat.
2013: The Future Looks Bright
While MLPs disappointed in terms of performance for 2012, we look for the asset class to rebound in 2013 and beyond. MLPs continue to grow and evolve as an asset class, making new records in terms of market capitalization, capital investment and distributable cash flow each year. With U.S. energy independence, led by the shale revolution, only in its infancy, investment in U.S energy infrastructure has never been more attractive.
The Ever-Changing Landscape of Master Limited Partnerships
There have been fifteen MLP / PTP IPOs in 2012 raising $4.5B. In order to keep pace with this rapidly growing and evolving asset class, Yorkville added three new sectors to its suite of MLP / PTP Universe Indexes: Energy Services, Downstream, and PTP Royalty Trusts. While MLPs may have lost ground in November, fundamentals remain strong. Over 95% of MLPs maintained or increased their distribution for an asset class average of 5.9% year-over-year.
MLPs Protect Investment Income From Rising Taxes
In 2013, the marginal tax rate on dividends is slated to increase from 15% to 39.6%. This rise in taxes will significantly reduce after-tax income earned from dividend-paying common stocks. MLPs, however, are well-positioned to be beneficiaries due to their tax-advantaged income. MLPs provide protection that other alternative investments simply do not.
MLPs: An Asset-Class in Growth Mode
Through the first three quarters of 2012, MLPs have raised approximately $19B in equity offerings. As of the end of Q3, MLPs have also raised a record $21.4B in debt. The booming capital markets are a function of the underlying growth story of the asset class: shale and unconventional oil and gas plays have resulted in the discovery of substantial new reserves, and necessitate a build-out of energy infrastructure that should drive MLP distribution growth for years to come.
US Energy Infrastructure Investment Fuels MLP Distribution Growth
We estimate that approximately $200-$300 billion in direct energy infrastructure investment will be needed in the coming years to develop new energy sources in the United States. We foresee MLPs, with their optimal structure and cost of capital advantage, as being primary beneficiaries of this buildout and anticipate significant growth in distributions as a result.
Master Limited Partnerships (MLPs): Investments for All Markets
Since 2000, MLPs have outperformed the S&P 500 in eleven out of the last twelve years, averaging an outperformance of 19.5%. During these years, MLPs have managed to overcome various difficult market environments including tightening cycles and declining oil prices, consistently coming out on top. As of July 2012, the MLP universe was underperforming the S&P 500 by 5.3% and the spread between the MLPs and the Ten Year Treasury was above its historical average. Therefore, given the asset class' historical dominance and perseverance, we believe MLPs are positioned to outperform in the coming months, as detailed in our July 2012 PTP Beat.
The Price of Commodities and Gathering & Processing MLPs
The Yorkville MLP Universe Index (YMLPU Index) posted year-over-year quarterly distribution growth of 6.9%, despite a drop in the price of WTI Crude Oil of approximately 20%, during the second quarter. As of 6/29/12, MLPs yielded 6.7%, a spread of more than 500bps above the Ten-Year Treasury yield, a historically wide margin.
MLPs Suffer Worst Monthly Decline Since November 2008
We found that May 2012 was one of the worst months on record for the MLP asset class, but after attending the National Association of Publically Traded Partners (NAPTP) annual conference in late May, we continue to see much growth potential for both US energy production and the MLP structure.
MLPs Gain in April Bucking Broad Market Trends
In April, MLPs reversed the 1st quarter trend and outperformed the broader equity markets. For the month, the MLP Universe gained 2.4%, bringing year-to-date returns to 5.8%. Meanwhile, the S&P 500 retreated -0.6% including dividends, lowering its 2012 total return figure to 11.9%. Commodity-focused MLPs beat out their Infrastructure counterparts by a significant margin in April (3.5% versus 2.0%) as natural gas rallied 14.5% off a bottom in the middle of the month to close at $2.285. The Yorkville PTP Universe Index returned only 1.8% on the month as Financial PTPs dragged on performance, finishing down -3.8%.
MLP / PTP Beat: 1st Edition
We are proud to publish the first edition of Yorkville's Monthly MLP / PTP Beat. Our Monthly Beat is a mid quarter snap-shot of performance and asset class moving events for the previous month. The piece uses Yorkville's Suite of 15 MLP/PTP Universe Indices as the foundation for our analysis of total returns and yields across the asset class. We trust you will find Yorkville's MLP / PTP Beat useful in your analysis and investing in MLPs.