Master Limited Partnerships (MLPs) offer good value to institutional investors in today’s environment. According to Marcus McGregor, Head of Master Limited Partnership Strategy at Conning, MLPs compare favorably to other asset classes, such as investment-grade corporates, utilities and REITs, from a valuation perspective.
Mr. McGregor points out that MLPs “screen as cheap” relative to other asset classes in the 3-year average yield on the Alerian Index. He also notes that not all MLPs are tied to crude oil. Mr. McGregor, says that more than 60 percent of mid-stream MLPs over the next several decades are dedicated to natural gas, not crude oil. As a result, Conning considers them a good opportunity for institutional investors.
MLPs offer insurers an attractive source of after-tax income. According to Mr. McGregor, 70 to 100 percent of distributions from MLPs are tax deferred. In addition, Mr. McGregor notes that most MLPs are in the mid-stream energy space, comprising companies that are in pipeline transportation, storage and terminaling. With increases in production of crude oil and natural gas in the U.S. and the rest of North America, billions of dollars are expected to go into additional infrastructure projects in the U.S. Conning believes MLPs will benefit as a result.
For more on institutional investing for insurance carriers, visit the Conning website.