Navigating the Universe of MLPs

Whether you are a novice MLP researcher looking to make your first purchase or a seasoned investor preparing to add to your portfolio, the universe of MLP offerings can be daunting. With the growing diversity of industries forming MLPs, it can be hard to figure out where to start screening the candidates for your portfolio.

One of the sites MLP investors should have bookmarked for market intelligence is Alerian. Alerian was formed in 2004 to provide intelligence on MLPs and the energy infrastructure markets. The company has several benchmarks that are used not only to assess relative performance of the sector, but to generate investment ideas.

The Alerian MLP Index (AMZ) is a composite of the 50 most prominent energy MLPs. The index currently includes MLPs from the following sectors: Gathering & Processing, Natural Gas Transportation, Petroleum Transportation, Exploration & Production, Coal, Compression Services, Propane, Shipping, and Refining.


Source: Alerian

The index includes everything from behemoths like Enterprise Product Partners (NYSE: EPD) and Kinder Morgan Energy Partners (NYSE: KMP) down to a pair with market capitalizations under $1 billion in Martin Midstream Partners (NASDAQ: MMLP) and Navios Maritime Partners (NYSE: NMM). The total market cap of the index is $328 billion, and its one-, three- and five-year total returns are 20 percent, 48 percent and 194 percent. The index yield is 6 percent.

The Alerian MLP Infrastructure Index (AMZI) is comprised of 25 energy infrastructure MLPs that earn most of their cash flow from the transportation, storage, and processing of energy commodities. The AMZI is a subset of the AMZ, as each of its 25 components is also included in the AMZ.

The total market cap of the index is $272 billion, but the one-, three- and five-year total returns are better than those for the AMZ at 24 percent, 56 percent and 216 percent. The index yield is 5.7 percent.

The Alerian Natural Gas MLP Index (ANGI) is an equal-weighted composite of 20 natural gas infrastructure MLPs that earn most of their cash flow from the transportation, storage, and processing of natural gas and natural gas liquids (NGLs).

Some of the criteria for inclusion into this index are that units must have a market capitalization of at least $500 million and trade on the New York Stock Exchange or the Nasdaq. Component partnerships will have also maintained or grown distributions quarter-over-quarter for at least one of the trailing two quarters, and they must have a policy intended to consistently maintain or increase distributions over time (i.e., no variable-distribution MLPs).

Because this is an equal-weighted, periodically rebalanced index, top holdings show the MLPs that have outperformed the overall index, while the biggest losers will be found at the bottom of the portfolio. Presently, Crosstex Energy (Nasdaq: XTEX) comprises 6.4 percent of the overall index, reflecting its nearly 30 percent gain in October. Regency Energy Partners (NYSE: RGP) has been the laggard of the group (albeit just barely), falling to 4.84 percent of the overall index makeup.

The total market cap of the ANGI is $190 billion, and the one-, three- and five-year total returns are 29 percent, 52 percent and 249 percent. The index yield is 6 percent.

The Alerian Large Cap MLP Index (ALCI)  is another subset of the AMZ. It’s an equal-weighted basket of the 15 largest energy MLPs by market capitalization, all of which are also in the AMZ. The top performer since the most recent quarterly rebalancing has been Magellan Midstream Partners (NYSE: MMP), which comprises 7.4 percent of the index at present. At the bottom since the latest rebalancing is Enbridge Energy Partners (NYSE: EEP), at 6.47 of the overall index.

The total market cap of the ALCI is $232 billion, and the one-, three- and five-year total returns are 20 percent, 39 percent, and 167 percent. The index yield is 5.1 percent.

Finally, the Alerian Energy Infrastructure Index (AMEI) is a composite of 30 core North American energy infrastructure companies engaged in the transportation, storage, and processing of energy commodities. Index constituents belong to one of five categories: US MLP affiliates (30 percent); MLPs (25 percent); Canadian infrastructure companies (20 percent); US infrastructure companies (15 percent); and Canadian MLP affiliates (10 percent). Index constituents are equally weighted within each category.

The total market cap of the AMEI is $416 billion, and the index yield is 3.9 percent. The one-, three- and five-year total returns are 30 percent, 80 percent, and 257 percent.

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