The Global X research team has developed an MLP monthly report that seeks to provide relevant news to the MLP industry and offer insights on the asset class's yields, valuations, volatility, and correlations.
News: September saw the first MLP IPO of 2016 with Noble Midstream Partners. Enbridge Inc. and Spectra Energy Corp. agreed to a merger deal. Informal OPEC meeting led to preliminary agreement to reduce oil production.1
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, climbed 1.40% in September, and are up 16.53% over the last year. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 7.24%, which is higher than broad market benchmarks for High Yield Bonds (6.17%), Preferreds (6.16%), Emerging Market Bonds (5.03%), and REITs (3.70%). MLP yield spreads versus 10 year US treasuries have fallen this year to 5.64%, given the rally in MLPs, but remains above longer term average spread of 3.50%.2 (Source: Bloomberg, AltaVista Research, FTSE, S&P, 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, has risen along with the recovery in prices over the past year. Since last September, the ratio has increased approximately 14.7%, which closely mirrors the 14.5% 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 at the beginning of 2016, volatility has recently stabilized at just above 20%. Correlations with crude and energy stocks increased moderately over the last three months as oil fell below $45/barrel. We have found that when oil falls below $45/barrel, correlations between MLPs and crude rise significantly. (Source: Bloomberg)