The MLP Index is on track to post a 2011 price change of around 5% and a total return of more than 10% (factoring in distributions). It will mark another year of MLPs outperforming the S&P500, the 11th time in the last 12 years that has happened (2008 goes down as a tie, with both indexes down 37% on a total return basis). I believe that kind of repeated outperformance by the MLP Index I believe is a result of the secular growth story behind the assets they own and the hunger for yield from an aging population (caused in some part by low rates). But another major factor is the MLP structure and the high payout ratios of MLPs that force management teams to be prudent stewards of the capital they oversee.
It has not been smooth sailing for MLPs this year, however, and there were a few corrections and scares along the way that flushed out some of the weaker MLP holders, providing opportunities for long term holders. The chart below shows the performance of the MLP Index with each of the 5 years plotted across one calendar year. Looking at the 2011 line, there were periods during May and August, when it seemed the index was tracking 2008. But the 13%+ rally this 4th quarter looks more like 2009 and 2010 than 2008. However, also noteworthy is that the last time MLPs had a somewhat complacent year amidst a weak economic backdrop (2007), the following year turned out pretty pretty bad.
Also, the year to date MLP Index price change of around 5% is somewhat deceiving. An equal weight average of the Alerian MLP Index members would have been up only 0.2% so far in 2011...
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