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MLPs: MLP Weekly Update; 2009 Looks to End
on a High Note 2009-12-23
Energy: Master Limited Partnerships
MLP Weekly Update; 2009 Looks to End on a High Note
Summary:
After a robust 2009, (the Alerian MLP Index has returned 74%
year-to-date as of Dec. 21, 2009),
our outlook is for approximately 11% total return for the
group as a whole to our $293 target on the Alerian MLP Index
(AMZ-$282.57), although valuations may actually overshoot
given the scarcity of high yielding instruments with low
risk in the market place.
Key Points
* We continue to recommend that investors overweight the
group. Our target is
$293 on the AMZ, which we derive from an equal-weighted
blend of a spread-to-
U.S. Treasuries valuation (3%) and a long-term average yield
(7.9%). Our
target implies ~12.3% total return potential. Year-to-date,
MLPs have
strongly outperformed (+51%) the S&P 500 (+25%). For 2010,
we continue to
recommend that aggressive investors overweight higher beta,
smaller cap,
commodity-sensitive names into the economic recovery.
* Index Change. At market close on Friday, Dec. 18, 2009,
MLPs experienced a
2%-3% dip attributed by most market watchers to an index
rebalancing by Dow
Jones that excluded MLPs. We believe the dip on sell
imbalances at market
close (corrected rapidly on Monday morning) may have been
exacerbated in some
cases by option expirations. The underlying issue with MLPs
being excluded
from indices is, in our view, a function of some portfolio
managers
complaining about index-matching given constraints on K-1
receipt. Most of
the other reasons, provided by Dow Jones and Wilshire
previously, don't hold
water, in our opinion.
If you would like more information on our unique
proprietary process for building successful tax efficient
portfolios, reply back or give me a call at 916-925-8900.
Let me know if you have any questions or if I can help with
something.
Cheers –Keith
916-925-8900
P.S. Be sure I am in your address book so these weekly email
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Keith Springer is President of Capital Financial
Advisory Services, a registered investment advisor,
providing Wealth Management and Mortgage Consulting
Services. For more information on how to build and
maintain a solid retirement plan, please contact Keith
at
916-925-8900 or
Keith@KeithSpringer.com |
