MLPs are standing out for their resilience in the current market environment that has few bright spots.
U.S. markets were already struggling before the tariffs announcement last week prompted further declines. MLPs have remained defensive and have held up better than broader energy amid the market sell-off that has caused the S&P 500 to fall 19% from its peak.
The Alerian MLP ETF (AMLP ) has declined 4.6% year to date through April 8, while broader energy, measured by the Energy Select Sector SPDR Fund (XLE ), has dropped 10.1%, each on a total return basis. To compare, the broader U.S. market, measured by the SPDR S&P 500 ETF Trust (SPY ), is down 15.0% during the same period.
AMLP provides exposure to the Alerian MLP Infrastructure Index (AMZI). The index is a capped, float-adjusted, capitalization-weighted composite of energy infrastructure MLPs. Included companies earn most of their cash flow from midstream activities.
Energy infrastructure is more resilient than other energy subsectors. This is due to lower commodity price sensitivity and fee-based business models, which support stable cash flows.
Midstream would be expected to hold up better than broader energy in a potential recession given midstream’s defensive qualities. These include more stable cash flows and healthy yields, according to Stacey Morris, head of energy research at VettaFi.
See more: Tariff Tantrum: Addressing Questions on Oil & Midstream
AMLP’s underlying index AMZI is currently yielding 8.1%. This is above its three-year average of 7.4% but in line with its 10-year average. MLPs’ track record of producing generous yields can be particularly attractive during periods of market volatility.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP, for which it receives an index licensing fee. However, AMLP is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP.
