 |
MLP's: A Mid-Year Check In
2018 has already been an eventful year for MLPs and energy infrastructure companies. After several quarters of sluggish performance, MLPs had a strong second quarter.
The inflection point may well have been the Federal Energy Regulatory Commission's (FERC) policy statement that the pipelines it regulates, which are owned by MLPs, would not be allowed to recover tax allowances through their tariffs going forward. (See our prior
Market Digest for more detail).
The FERC policy announcement caused the entire MLP group to sell off the last two weeks of March.
But by April, the market realized that the impact was minimal for most energy infrastructure companies, and ve
ry few businesses would be acutely harmed. That news, and the fact that many MLP's were supported by higher crude oil prices, strong US drilling activity, and strong earnings growth, the Alerian Index (ticker AMZ) was up 10% in the second quarter.
Looking Ahead
In the second quarter, m
any MLPs and midstream companies announced strong first quarter results along with a favorable outlook for the rest of 2018.
There continues to be a significant need for more energy infrastructure. T
he pace of new project announcements picked up early this year, particularly among midstream MLPs. Most new projects are focused on expanding crude oil pipeline infrastructure, NGL (natural gas liquid) pipelines, natural gas processing capacity, and NGL export capacity. The rampant drilling activity in the Permian Basin in West Texas illustrates the investment opportunity for midstream companies.
New money has continued to flow into MLPs. The Alerian MLP ETF saw an inflow of $353.7 m
illion in the first half of this year. And, despite the recent out-performance, MLP valuations are still below their five-year average.
MLPs' yields have continued to surpass those of other higher-yielding investment options. The Alerian Index's (AMZ)
current yield is 7.90%, while the S&P 500's is 1.95%. Other income-generating investments like Utilities and REITs, have yields of 3.79% and 4.00%, respectively.
At New Market Wealth Management, we continue to believe MLPs deserve a place in a well-diversified portfolio. Based on current and upcoming projects, earnings should be strong, and both yields and valuations remain attractive.
|
|
|
Despite continued volatility, the major equity indexes ended last week higher. The threat of new tariffs and an escalating trade war drove last week's price swings, but investors were able to brush aside those fears and drive the S&P 500 to
its best week in over a month. Large cap stocks outperformed small-caps and information technology was the best performing sector within the S&P 500.
|
|
> Consumer Prices:
Last Thursday, the US Bureau of Labor Statistics released CPI data for June which showed subdued, but still higher, growth. Year-over-year rates are up 1 tenth for both CPI and Core CPI, which removes the volatile food and energy prices. The report was viewed as a positive for Federal Reserve policy makers who are now trying to hold inflation steady.
> Strong Retail Sales: Last week we commented on rising consumer confidence as evidenced anecdotally by strong sales of RV's. Last Friday, official retail sales data was released, and sales in the discretionary categories of autos and restaurants also came in strong. June sales rose 0.5%, and the May number was revised upward to an outsized 1.3%. Gains point to new confidence among consumers and are consistent with the strength underway in the labor market.
> Interest Rates:
This week, Fed Chairman, Jerome Powell, gave his semiannual address to congress and described current economic conditions with an upbeat tone. "Robust job gains, rising after-tax incomes, and optimism among households have lifted consumer spending in recent months. Investment by businesses has continued to grow at a healthy rate," he said. "Good economic performance in other countries has supported US exports and manufacturing. And while housing construction has not increased this year, it is up noticeably from where it stood a few years ago." Although he described the ramifications of an ongoing trade war as "difficult to predict," most observers believe trade concerns won't be enough to keep the Fed from hiking rates as planned.
|
|
Earlier this summer, a couple thousand women braved the cool waters off the coast of Ireland wearing smiles, body paint and not much else. The group set a Guinness record for the world's largest skinny-dip - 2,505 women in all - according to the on-site Guinness representative. The group broke
the previous record of 786 set in Australia in 2015.
Participants in the annual swim raised money for
Aoibheann's Pink Tie, a charity that supports children with cancer. Dee Featherstone, event organizer and cancer survivor, organized the event as a way for women who have cancer to take ownership of their bodies again. After six months of chemotherapy and a mastectomy, Featherstone says she decided to stage a skinny-dip fundraiser for cancer research and awareness. "I contacted some friends and family ... and told them, 'I only have one boob and I'm bald, so what's your excuse?'"
The first year saw 60 women participate and last year it was 200.
The women stayed in the water - which measured a chilly 54 degrees Fahrenheit
- for five minutes in order to set the new world record.
|
|
New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we have access to institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
|
|
|
|
| |
|
|
|
|
