Income Growth Advisors’ MLP year to date performance rose 66.68% on an equal weighted basis and 29.40% on a size weighted basis.

Income Growth Advisors’ MLP strategy rose 2.77% in July, its fifth consecutive monthly gain since the oil and MLP market bottomed in February. July’s performance was remarkable because it occurred while the two fundamental factors, most highly correlated to the price of MLPs, declined. Oil fell 20% from its June monthly high and interest rates rose. These fundamental factors failed to pull the sector down, confirming our thesis that MLP spreads are still historically very high and the sector has more to go.

August 2016 performance

Please see our performance disclaimer at the end of the attached PowerPoint Presentation.

Having been through the 2007-8 bear market in oil and MLPs, we don’t like to overstate the skill involved in producing these returns. Much of our strong performance is the result of a snap back or mean reversion move. The Alerian MLP index yielded 12% on February 11, 2016, when rumors swirled that a major energy player Chesapeake Energy Corporation, was retaining bankruptcy attorneys–a rumor that marked the bottom for this cycle. After 15 years of investing in this sector, we knew these yields were extreme, though calling the bottom or even anticipating the oil glut is nothing we can claim. We just recommended buying and investing over a period of time to reduce the market timing risk to a minimum. With the Alerian now at a 7% yield, the effect on our returns is obvious.

What investors fail to grasp is that yield spreads for MLPs are still much higher than their historic average yield spreads to US Treasuries, REITs, and high yield bonds. Based on those competitive yield assets and MLP’s approximate 10 year duration, we expect MLPs could rally another 20%. While 20% is attractive, MLPs also offer 7% yields, and our experience will help us to identify attractive outperforming MLPs. Consequently, we anticipate solid double digit returns over the next two years.

We report client returns on an asset class basis, which is not the standard GIPS performance protocol, because we like to add MLPs into the portfolios of many of our clients. We have a small number of dedicated MLP accounts, but believe we should include all MLPs owned for clients, which is achieved through asset class reporting. Our digression, while informative, is for shameless self-promotion.

We argued in earlier letters that we have over-weighted American Midstream Partners, LP (AMID) and JP Energy Partners, LP (JPEP), as two MLPs whose businesses appeared to offer superior return prospects. They delivered. Our equal weighted return for MLP accounts this year is 66.68%, before our management fee. This return communicates to performance analysis experts that we are picking the right stocks within the sector.

equal vs size wtd 8.2016

We continue to advise investors to invest in MLPs because the bear market cycle has ended for MLPs and oil, yield spreads remain compelling and we are proven stock pickers in the sector. We offer fully transparent separately managed accounts through Interactive Brokers where you can watch your portfolio on a daily basis and open an account online.

Our largest account exceeds $5,000,000. Because we report size weighted performance, our performance is tightly correlated to this account. For this particular family office, we are one of six investment advisors and custody its assets at US Trust/Bank America/Merrill Lynch.

We also offer two MLP models through Folio Institutional where your advisor can subscribe to our models and invest in our models for taxable and retirement accounts.

Due to the large tax burden of owning MLPs through 1940 Act structures–mutual funds, closed end funds, ETFs, we advise owning MLPs through separately managed accounts (SMAs). Our attached PowerPoint presentation details several ways our SMA MLP strategy is decidedly superior to the return performance record of the Alerian Index (AMZX) and to the Alerian MLP ETF (AMLP). However, if you wish to own a MLP fund, we would gladly analyze them on your behalf and can help you find the best ones for your investment strategy.

Sincerely,

 

Tyson Halsey, CFA

Managing Member

 

 

 

 

 

 

 

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Disclaimer

The information expressed on our website is based upon the interpretation of available data. The data being presented was obtained or derived from sources believed to be accurate, but Tyson Halsey and Income Growth Advisors, LLC

(IGA) cannot and does not guarantee the accuracy of these sources which may be incomplete and/or condensed. The data and information presented is provided for informational purposes only, and is not offered as a basis for trading in securities nor is it offered for that purpose.

Nothing contained herein should be construed as a recommendation to buy or sell any securities.

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