Can MLPs Beat the S&P 500 in 2017?
MLPs in 2016
MLPs (master limited partnerships) ended 2016 in positive territory after two straight years of negative returns. On average, MLPs rose 22% in 2016.
The Alerian MLP Index (AMZ), a capital-weighted index tracking the performance of 50 energy infrastructure MLPs, saw its fifth-largest yearly gain in the last ten years. AMZ gained 8.5% in 2016. However, the index is still trading 41% below the highs it touched before the rout in energy prices.
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MLPs, which mostly comprise energy and natural resources companies, recovered slightly after experiencing one of their worst performances in 2015. Investors dumped anything related to oil and natural gas with the fall in energy prices at the end of 2014.
Even MLPs, which were considered safer investments, saw major sell-offs. This could be attributed to the decline in MLP throughput volumes, lower earnings for MLPs with commodity price exposure, and general negative sentiment toward the energy sector.
MLPs versus S&P 500
MLPs underperformed the S&P 500 Index (or GSPC) by 344 basis points in 2016. However, MLPs outperformed the S&P 500 in terms of total returns. Including a 7.3% yield, AMZ has returned 18.3% in 2016 on a total return basis.
Investors’ confidence toward MLPs seems to be returning. AMZ has outperformed the S&P 500 over the last 12 years until the second half of 2015. This could support MLPs’ recovery in 2017.
In this series, we’ll analyze the performance of MLPs in detail, including a performance review of MLP subgroups, top MLP gainers and losers, and MLPs’ financial metrics. We’ll also look into the MLP fund market, regulatory concerns, and the best MLP picks for 2017.