A. MLPs as an investment category has declined 25% over the past 10 months, now MLPs offer attractive yields and M&A activities are heating up with small MLPs got acquired at a premium. Over the long term, energy is still the growth sector for the U.S. with expanded infrastructure. No wonder some investors are paying attention to MLPs.
However, MLPs could have room to go down from here, some catalysts include: declining oil prices, rising interest rates, slowing global growth rates, and more crude supply with nuclear treaty with Iran.
What's the best strategy to deal with MLPs right now?
a. Recognize this is for the long term play, with short term downside risk still exists.
b. Invest in the largest and most liquid midstream MLP players that collect fees for activities like storing and transporting oil and natural gas. A few names: Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP).
c. Invest in MLPs that might benefit from M&A activities such as Nuveen All Cap Energy MLP Opportunities (JMLP), ClearBridge American Energy MLP (CBA), and Tortoise MLP (NTG) which have large percentages in small and mid-cap MLPs that could be acquisition targets.