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MLPs May Increase Portfolio Performance

Owning oil and gas pipelines can add octane to a portfolio’s performance, particularly in today’s energy and economic backdrop.

It’s our job to help clients gain the proper exposure to safety, market and aspirational asset categories. It’s also our job to identify pockets of the market that, when available, have attractive fundamentals and/or characteristics worth considering. Oil & Gas MLPs in the midstream space (storing and transporting energy) has caught our interest for years and remain an asset class of interest. While we take care of researching and handling the details for our clients, it doesn’t hurt for you to pipe into the conversation. Here’s a quick primer on the space.

One asset class has rebounded to new all-time highs — U.S. small cap stocks.
Comparison of S&P 500, Russell 2000, Emerging Markets and Int'l Developed Indices

After a bullish 2017 and hopes of a continued global equity melt up, 2018 has instead reintroduced market volatility. Despite global market volatility, U.S. small cap stocks have rebounded to new all-time highs.

Factors influencing the success of U.S. small cap stocks

So what factors has caused this success versus larger capitalization stocks?

The challenge of performance measurement

People examining economic statistic. Financial examiner. Vector illustration.

When was the last time you examined your investments?

Periodic reviews of an investor’s portfolio helps ascertain whether the investment process is working, but more importantly, whether it’s on the right course for the individual investor.

The Beardstown Ladies was a 12-woman investment club that gathered monthly and managed their own stock portfolio. They became celebrities in the mid-1990s when news of their track record went viral: since their 1983 inception, The Beardstown Ladies claimed their portfolio had returned 23.4% versus the S&P 500’s 14.9% return. But in 1998, an audited performance record was released showing the club’s actual returns were actually 9.1% per year. 

This example illustrates the fact that most investors simply don’t have proper performance data to assess their investments.

Asset Allocation

No single input is more important to a portfolio’s success than asset allocation, or determining how much to allocate to various asset classes.

In 1986, authors Gary Brinson, Gilbert Beebower, and Randolph Hood conducted an in-depth study of the various sources of investment returns. Specifically, they analyzed quarterly returns from 1974-1983 for the 91 largest pension funds, and determined that 93.6% of the returns generated were a result of asset allocation.

In a follow-on study in 1991, the authors concluded that 91% of portfolio returns are determined by asset allocation.


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