Alerian MLP: Energy & Income

06/30/2017 2:52 am EST

Focus: ETFs

Robert Carlson

Editor, Retirement Watch

In our Retirement Paycheck portfolio, we seek above-average yields but we also want a margin of safety. We want to buy when prices are relatively low and sell after investors push prices too high, increasing our margin of safety, says Bob Carlson, editor of Retirement Watch.

Master limited partnerships (MLPs) have been in and out of the portfolio over the years. Currently, MLPs are represented in our portfolio by JP Morgan Alerian MLP ETN (AMJ).

This exchange-traded note is a promise by J.P. Morgan to pay the return of a capitalization-weighted index of the 50 largest MLPs, minus expenses.

It makes cash payments equal to the index yield during the year. MLPs provide the services and infrastructure for the energy industry, such as pipelines and storage facilities.

They charge fees, usually under long-term contracts, for their services. The ETN has been up and down a lot the last few years.

Though MLPs shouldn't be dependent on the price of oil, MLP investors in the short term tend to react to oil price changes. AMJ has been especially volatile in 2017. It is down 2.58% for the last month and is up 0.77% for 2017.

The yield is 6.28%. It's still up 11.75% for the last 12 months. As has been the case for several months, I'm closely watching AMJ. Continuing growth in the global economy and growing demand for energy should be good for MLPs.

Investors regularly are reacting to short-term news, becoming short-term bullish and bearish on the sector. I'm taking a longer-term perspective and believe solid returns are likely to resume.

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