Is a Bottom Forming for MLPs?

11/27/2017 5:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

I think we’re finally seeing the bottom forming in MLPs, which is good news for JPMorgan Alerian MLP ETN (AMJ), explains fund expert Bob Carlson, editor of Retirement Watch.

We re-entered this investment a little early. It appeared the decline from the energy bear market was over, but there have been some residual effects in the last few months. Over the summer, a major MLP surprised the market with reductions in its distributions.

In October, the largest master limited partnership, Enterprise Products Partners (EPD), announced that over time it would use its own cash flow to expand, instead of relying on loans and other external capital. It plans to do this partly by reducing distributions to shareholders.

The MLP market had a strong negative reaction to the news in October, erasing recent gains and falling to a new low for 2017. Now, it looks like the markets have adjusted, registering about a 4% bounce in early November. The fund yields a little over 7%. It’s still down 4.67% for the last four weeks and 9.85% for the year to date.

MLPs should benefit from higher energy use and increased production in the United States. There still are risks from higher interest rates and the general skittishness of the individual investors who are the primary owners of MLPs. But if there are no more surprises, we should see AMJ recover into the new year.

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