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Adam Scott

 
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  • MLPs And Interest Rates, How Right Is Mr. Gundlach? [View article]
    Yes, I suppose we do. With the exception of this week, REITs have been on a steady tear for years. As their yield as dropped they have become less attractive to us, in relative terms. And they don't have the same ability to increase rates (and therefore distributions) as the MLPs do. But there are also different factors driving their appreciation. We own both asset classes -- in slightly different allocations than in years past.... Keep the good stuff coming, Phil!
    May 25 10:58 AM | Likes Like |Link to Comment
  • MLPs And Interest Rates, How Right Is Mr. Gundlach? [View article]
    Hi Philip,

    Great article and I'm happy to be following you! The short answer to your question is 'yes,' but it's a little more complicated these days. In our view, US Treasuries hold just about zero relative value to cash, so in "relative terms" you aren't really gaining much advantage by making that comparison today. When it comes to cost of capital for assets that are highly leveraged, Treasury rates are obviously important. Not sure if that answers your question?

    Thanks again!
    Adam
    May 22 11:00 AM | Likes Like |Link to Comment
  • MLPs And Interest Rates, How Right Is Mr. Gundlach? [View article]
    Hi Matt,

    Neither your #1 nor #2 most important points are, in fact, the most important point. The single most important point with regard to how attractive an MLP is, or MLPs are, is their after-tax yield.

    A great deal (60-100%) of an MLP's distributions are recorded as 'return of capital' and, as such, are tax-exempt. The remainder are taxed as ordinary income. If I'm a long-time municipal bond investor who has watched my risk- and tax-free interest income dwindle from 10+% all the way down to 2-3%, I'm suddenly very interested in the beneficial tax treatment the MLPs' distributions offer.

    Historically, yes, the comparison of MLP yields vs. 10-yr Treasuries has been a relevant factor in determining MLP valuations. I think it's more interesting to consider what could happen if just 5-10% of the trillion dollar municipal bond market shifted towards the space....

    Adam
    May 19 07:08 PM | 1 Like Like |Link to Comment
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