MLP Monthly Report: November 2016

Click here to read the November MLP Report offering insights on MLP industry news and the asset class’s yields, valuations, volatility, and correlations.

Summary

News: US LNG exports are predicted to surpass imports for the first time in 60 years. Buckeye LP announced a $1.15 billion purchase of 50% of the GP stake in VTTI Energy.1 US crude production rose by 0.65% from the last week of September to the last week of October. Q4 MLP distributions grew 0.33% on average quarter-over-quarter. (Source: MLPData and EIA)

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell -4.6% last month on lower prices, but the index remains up 0.8% since the end of last October. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.67%, increasing 43 basis points from 7.24% last month. MLP yields remain higher than the broad market benchmarks for High Yield Bonds (6.29%), Preferreds (5.35%), Emerging Market Bonds (5.28%), and REITs (4.27%). MLP yield spreads versus 10-year Treasuries currently stand at 5.83%, higher long-term average spread levels of 3.54%.2 (Source: Bloomberg, AltaVista Research, and Fed Reserve)

Valuations: The price to adjusted EBITDA ratio, which seeks to provide more color on an MLP’s prices relative to their earnings, fell this month as MLP share prices declined with a broader energy selloff. Valuations are now at their most attractive levels since June of this year. Since last October, the ratio has fallen approximately -0.5%, closely mirroring the 0.8% appreciation of the Solactive MLP Infrastructure Index, demonstrating the stability of midstream MLP earnings this year, despite low energy prices. (Source: Bloomberg, MLPData, company financials)

Risk: Since the period of heightened volatility in early 2016, volatility has stabilized at just below 20%, two-thirds lower than the peak of MLP market volatility. Crude prices fell last month, down -2.9% to 47/barrel. We have found that when oil falls below $45/barrel, correlations between MLPs and crude rise significantly. (Source: Bloomberg)

161114-mlp_monthly