ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. MLP ETFs: A Safer Way to Play the Oil Rebound
News
Share

MLP ETFs: A Safer Way to Play the Oil Rebound

Stoyan BojinovFeb 10, 2015
2015-02-10

Recently, we discussed the inherent risks associated with trying to time the bottom in crude oil prices via the well-known United States Oil Fund (USO B). Today, we’re examining the same issue through from the perspective of making an oil rebound-related bet in the equity market rather than the commodity futures market.

Trying to time the bottom in any asset is a risky endeavour, especially when dealing with commodity prices that are known for being inherently unpredictable over the near-term. Luckily, the ETF universe spans far and wide, giving investors a variety of choices when it comes to accessing a particular corner of the market; more specifically, we’re talking about using MLP ETFs to take advantage of the sell-off in oil prices in anticipation of a rebound over the coming weeks and months.

Why MLPs?

Since peaking in early July of last year, falling crude oil prices have dragged down energy-related assets across the board. Simply put, anything and everything associated with crude oil has taken a beating in recent months in light of bearish pressures looming over the entire energy sector.

Consider the performance chart below, which compares how various energy-related assets fared during the prolonged selloff and most recent rebound; please note that crude oil, the energy sector, and MLPs, are represented by (USO B), (XLE A), and (AMLP A-), respectively.


Content continues below advertisement

There are two key takeaways here; first and foremost, the selloff in crude oil triggered a period of profit-taking across all energy-related assets, as evidenced by the negative returns across the board during the “Oil Selloff” period (blue bars). Second, and more importantly, notice how MLPs have been the least volatile asset class during both the selloff and subsequent rebound (gray bars) periods.

This leads us to conclude that MLPs were simply guilty by association during the oil selloff period. That is to say, AMLP sank because it falls under the energy sector umbrella, and not necessarily because falling oil prices had a material impact on the profitability of the underlying component holdings of the ETF.

Factors to Consider

The fundamental reason for why MLPs didn’t get hit as hard as some other energy-related assets during the oil selloff has everything to do with the nature of their business model. Energy MLPs operate under a “toll road” business model, meaning that they generate fee-based revenues that are inherently dependent on the sheer volume of oil and gas traveling through their pipelines more so than the underlying spot prices for these energy commodities. In other words, MLPs are more “defensive” than energy producers, like those included in XLE, since their profitability is not directly tied to the prevailing price of crude oil.

With that in mind, we think MLP ETFs offer a lucrative opportunity for investors who are looking to favorably position themselves in anticipation of oil prices rebounding, but wish to avoid companies whose underlying profitability is directly linked to the price of oil.

If oil prices head south again, MLP ETFs, like AMLP, should remain more insulated from further downside than other energy-related assets as we saw during the oil selloff period highlighted in the chart above. Likewise, if oil prices continue to rebound, MLP ETFs will likely continue to lag their energy-related counterparts because they are fundamentally not as well positioned to take advantage of rising oil prices.

Read more about Understanding the Nuances of MLP ETF Expenses.

The Bottom Line

In light of the recent selloff seen across energy-related assets, MLP ETFs currently present a “safer” way to bet on oil’s rebound going forward; these securities offer less upside potential in the event of a continued rebound, but they are also better insulated from further profit taking pressures in case oil prices turn lower once again.

See our complete list of Energy MLP ETFs here.

As always, be sure to look closely under the hood of any one product and carefully consider its nuances and limitations before pulling the trigger and making an allocation.

Follow me on Twitter @Sbojinov

[For more ETF analysis, make sure to sign up for our free ETF newsletter]

Disclosure: No positions at time of writing.

» Popular Pages

  • Tickers
  • Articles

Jan 27

ETF Issuer League: JPMorgan ETFs Almost $100 Billion

Jan 27

Main Management Market Note: January 27, 2023

Jan 27

As Recession Signals Grow, Turn to Risk-Managed ETFs

Jan 27

HGER Acts as a Compelling Solution for Inflation

Jan 27

Mutual Fund-to-ETF Conversions: The Future in 4 Charts

Jan 27

American Century ETF Duo Hits Key Buy Signals Friday

Jan 27

ACES and AMLP Aid Investing in the Energy Transition

Jan 27

Target Long Duration, High Quality Fixed Income

Jan 27

The Sharpe-r Way to Invest

Jan 27

Structure Matters: Volatility May Make 60/40 Unclear

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X