MLPs With Better Risk Adjusted Return Than The S&P 500

by: Richard Shaw


If you want to own MLPs and have the yield and tax advantages that many provide, you might also want to add relative risk adjusted return to your criteria.

Identified 112 MLPs, 69 of which have at least 3 years of trading history.

13 have better 3-year risk adjusted return than S&P 500.

10 have better 5-year risk adjusted return than S&P 500.

5 have better 10-year risk adjusted return than S&P 500.

We were able to identify 112 MLPs, not all energy related, but MLPs nonetheless.

We calculated a form of risk adjusted return by dividing the return of the MLP by the ratio of the standard deviation of SPY (proxy for the S&P 500) over the standard deviation of the MLP.

We then compared that risk adjusted return to the return of SPY to identify those MLPs with a better relative risk adjusted return.

This relative risk adjusted return differs from other risk adjusted metrics such as Sharpe or Sortino in that it is relative to the risk/return attributes of a benchmark - the S&P 500 in this instance.

Of the 69 MLPs with at least 3 years of trading history, 13 had better risk adjusted return.

Of the 61 with at least 5 years of trading history, 10 had better risk adjusted return.

Of the 30 with at least 10 years of trading history, 5 had better risk adjusted return.

Note, however, that while the relative return for risk taken (where risk is defined as volatility) is better than the S&P 500, all of the MLPs had higher absolute volatility than the S&P 500. They are better in the sense that more return per unit of volatility was generated, not that they were less volatile.

These are the "winners":

Magellan Midstream Partners, L.P. (NYSE:MMP)
Sunoco Logistics Partners (NYSE:SXL)
Genesis Energy LP (NYSE:GEL)
Enterprise Products Partners LP (NYSE:EPD)
Plains All American Pipeline LP (NYSE:PAA)
Brookfield Infrastructure Partners LP (NYSE:BIP)
Western Gas Partners, LP (NYSE:WES)
Targa Resources Partners LP (NYSE:NGLS)
Energy Transfer Equity LP (NYSE:ETE)
EnLink Midstream LLC (NYSE:ENLC)
Cedar Fair LP (NYSE:FUN)
Access Midstream Partners LP (NYSE:ACMP)
Tesoro Logistics LP (NYSE:TLLP)

Within this list we have positions in MMP and SXL, among others not in this list. Relative risk adjusted return is one of many factors that would logically go into an MLP selection, but it is a factor worth evaluating.

This table provides the Morningstar return and volatility source data and our calculations for the rankings:

The following tables present various information about the MLPs in these lists as rendered by Morningstar.

Size, Sector and Industry

Yield and Dividend Growth

Short-Term Total Return

Revenue and Revenue Growth

These charts show the daily relative market performance of each MLP over the past year versus SPY.

5 With Better 3-year, 5-year and 10-year Relative Risk Adjusted Return

5 With Only Better 3-year and 5-year Relative Risk Adjusted Return

3 With Only Better 3-year Relative Risk Adjusted Return

Disclosure: QVM has positions in MMP and SXL as of the creation date of this article (May 7, 2014). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article.

General Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.