Master limited partnerships (MLPs) have been all over the news lately. Oil and natural gas are down significantly this year, and in return, MLPs have been clobbered. (The popular AMLP – Alerian MLP is down over 35% year to date.)
MLPs operate a toll road business model and produce large, dependable dividends. With interest rate so low, for so long, MLPs have had increased popularity with FastTrackers over the past 5+ years.
This post will not get into whether we’re at a bottom or if they’ve got another leg down on tap. I’ll leave that to the talking heads on CNBC. In this post we’ll look at how to use the family sieve to build a family that contains all the many different MLP asset in the FastTrack database. Since MLP investments can exist as funds, etfs, and stocks, we’ll have to combine multiple families to get the complete list of all MLP assets in the FastTrack database.
What questions will we answer?
Once we build the MLP family, we’ll have a good list of tickers to do a relative analysis to answer questions like:
- Which MLPs drew down the most?
- Did all MLPs draw down?
- Did MLPs mutual funds do better than ETFs?
- Are stock based MLPs riskier?
Master Limited Partnership Basics
But first, let’s get some MLP basics. MLPs are the publicly traded partnerships that own, operate, and build energy infrastructure assets such as pipelines, storage facilities, and processing plants. The assets MLPs own are like a national highway where cars pay a “toll” to travel from state to state. Instead of cars, MLPs transport hydrocarbons and charge a “toll” to transport them from upstream producers and the end user.
MLPs charge based on the volume of product they move, so the “tolls” they charge tends not to fluctuate with the price of commodities. In order to grow, MLPs essentially have to acquire infrastructure or build it. In the recent low interest rate and easy credit enviornment, debt has been the preferred method to finance MLP growth. MLPs add debt to expand and keep paying out earning as dividends. With rates on the rise (in particular junk yields), this business model has come under stress and caused heavy draw downs across the industry.
How to build the MLP Family.
Open the First, open spreadsheet “Load Family” screen. The Load Family window displays a treeview of all the FT Cloud families on the left side and a sieve to collect and funnel those families on the left. Next, Since we don’t know where in the tree MLPs exist, we’ll search the family tree for all families that the name contain the word “partnership.”
- enter “partnership” in search text box
- select the “family” search option (this will search all family names)
- press search button to display results
The search results show a family under the Funds & ETFs >> Objective >> Commodities >> Limited Partnerships. Double click the name to load the tickers into the right side list.
The limited partnership family gives us all the MLP funds and ETFs. Now we want to include all of the stock based MLPs. To do this, we’ll use an alternate search method. We’ll search all families that contain a well known MLP stocks, Kinder Morgan (KMI). If a stock MLP family exists, it definitely contains this well known company. As the search results show, there are a handful of families that contain KMI, but the one we want is the Stocks >> Industry >> Oil & Gas Midstream.
Now, we’ll SINGLE CLICK the family to highlight it. Then we will click the “add” button in the upper center/right to add the Oil & Gas Midstream tickers to the ticker list in the lower right (previously loaded from the “Limited partnership” family.
We can repeat these steps any number of times with other keywords or tickers to make sure we have all MLP tickers. For now, we’ve got 149 MLP ticker in the combined family list, so click the “load” button in the lower right to load the 149 tickers onto the spreadsheet.
Now that we have all the MLP tickers on the spreadsheet. We can rank, sort, chart, and do other relative analysis work to determine industry trends, best of class funds, out performance, etc.