Brookfield Infrastructure Partners (BIP), a master limited partnership, owns and operates infrastruc...
A Tortoise-Style Pipeline Pick for Retirees
09/06/2018 5:00 am EST
Are the dark days over for MLPs?, asks Robert Powell. Here, the editor of Retirement Daily offers a review of master limited partnerships and their role within retirement portfolios.
Russ Allen, the chief investment officer of Berman Capital Advisors, thinks so, and one opportunity that stands out is Tortoise North American Pipeline ETF (TPYP), which tracks an index of listed equities related to North American pipeline entities organized as MLP affiliates, MLPs, LLCs and corporations.
The reasons: Allen says TPYP (distribution yield as of Aug. 3, 2018, 3.85%) is a little-known ETF (it has only $150 million in assets under management) that is run by Tortoise Index Solutions, a well-known and well-resourced MLP specialist based in Kansas City. Tortoise also operates the Tortoise Global Water ESG Fund (TBLU).
Allen also believes that MLPs are well past their darkest days. "During the oil price crash, the group was plagued by fear that their customers would go bankrupt and/or renegotiate contracts," he says. "Their traditional project funding model of issuing units became prohibitively expensive, and their debt loads, while largely supported by cash flows, came under intense investor scrutiny."
In short, Allen says this is a "really hated group still despite progress on several fronts; specifically, the commodity rebound and the shift from external to internal financing coupled with deleveraging efforts.
Allen also says TPYP, though actively managed, is relatively cheap at 40 basis points.
Another positive: TPYP gives investors a 1099, whereas often direct MLP investing involves the "dreaded" K-1 form, says Allen.
Finally, and importantly, Allen says TPYP doesn't have the tax drag as it adheres to the SEC rule that less than 25% of the holdings are actual MLPs.
The fund, according to Allen, owns 75% C-corporations and some utilities that have midstream energy exposure. "As the name implies, it is pipeline-focused, which is the safest way to play the continued growth in U.S. production, a clear trend," says Allen.
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