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MLPs Promising Recent Jump

MLPs lead as midstream markets post gains for a 6th straight week

This summer reminds us why we have held faith in the fundamentals of the midstream MLP market. MLPs, a lesser known asset class, is beginning to shine in the second half of 2018.

The global markets have been turbulent and volatile thus far in 2018. Ongoing discussions between the U.S. and China and other key trading partners over import/export imbalances and ever-changing, multi-nation tariffs contribute to this volatility. However, despite increased coverage of tariffs and their negative effects on the global economy, pockets of U.S. equity markets out-performed global equity markets.

Because trade tariffs have little effect on small caps, the escalating trade war between the U.S. and China actually helps drive small cap prices higher. The U.S. small-cap market continues to lead equity market performance year to date. See Small-Cap Stocks Post New Highs.

MLPs positioned for long-term investors

After a frustrating couple of years, the commodity environment appears to be stabilizing. U.S. production growth trends remain strong, dividend cuts are likely nearing an end and balance sheets continue to improve. Earnings reports at the end of quarter 2 supported this stabilization. Notably, EBITA came in 3.2% better than consensus estimates and 4.6% higher than the preceding quarter.

Oil transports are far from the only players in the midstream MLP marketplace. Natural gas constituents continue to contribute to MLPs returns and were the best performing sub-sector for July 2018.  Energy exports–crude oil, natural gas and gas liquids–maintain record levels, thus providing a shining growth source for midstream companies.

Pairing current growth outlook and continued production increases with attractive current valuations, we believe MLPs are well positioned for long-term investors seeking attractive income and upside growth potential.

 

 


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