Master Limited Partnerships Back on Top in 2016

The end of 2016 brought with it the beginning of normalization of the prices of master limited partnerships (MLPs).  From 2000 through 2011 MLPs beat the S&P index every year. For 2016, MLPs are poised to lock in a victory. As of December 28, MLPs were up 18% and the S&P index was up 12.5%.

Looking into 2017, MLPs are set up to perform well. MLPs as a group are trading below historical valuations and the S&P is trading above historic averages. Given both the expected and unexpected tailwinds in the MLP space from growth projects coming online to the energy-infrastructure friendly incoming Trump administration, we see an opportunity investors should consider closely.

Speaking of growth projects, liquefied natural gas exports (LNG) to Mexico and a continued move into natural gas for electrical generation will keep many MLPs busy. The huge petrochemical construction projects to convert ethane to ethylene are going into production during the next 18 months (when combined with increasing exports of ethane) will generate solid growth for those MLPs involved in processing, storage, and transportation of ethane.

In short, MLPs have the potential to outperform the broad market in 2017 and beyond, backed by both fundamental and political factors.


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