Uh-Oh. Master Limited Partnerships Continue to Go Mainstream after 10 Years of Outperformance

The New York Times has joined the drumbeat of MLP coverage, noting how the relatively high yields and tax advantages of MLPs are drawing investors. (NYT)

Here’s some facts that should give everyone pause before investing in these complex products:

  • They have an average 16.7 percent annual return for the past 10 years
  • This return is roughly 2x the S&P 500 over the same time period

I fear a lot of investors will be chasing the “hot dot” with MLPs and get in right at the top.  Remember, commodity prices can be volatile in the extreme, and these are almost exclusively energy plays.  The chart below shows the year-ending values of the Alerian MLP Index and the percent change from the previous year.

Click on chart for full screen version.

Posted on October 18, 2012 in Complexity, Data Analysis, Investments, Master Limited Partnerships

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