Why Nontraditional Master Limited Partnerships Have Outperformed in 2018
A lack of market depth means that some of the highest-quality master limited partnerships have struggled to gain traction this year, helpting to explain why many of this year’s top performers come from off the beaten path.
Focus List Update: Holding Their Own
Our stock selection in the upstream segment has proved fortuitous in an earnings season where the market has punished companies that reported disappointing results and/or guidance.
US Shale Operators: Showing Restraint, Or Encountering Constraints?
In the past, we’ve argued (correctly) that market participants and investors who bet against the resilience and potential upside in US oil production do so at their own peril. However, with the market now accustomed to these upside surprises, investors shouldn’t overlook the potential constraints on US production growth.
Focus List (Mostly) Outperforms and Portfolio Updates
The improved outlook for oil prices and the rotation into energy stocks has lifted most boats in the sector, though we’re pleased that nine of the 13 names on our Focus List have outperformed the S&P 500 Energy Index over an equivalent holding period. We review our Focus List and discuss earnings and other pertinent developments affecting our Portfolio holdings.
Positioning the Portfolios for 2018
Many investors’ tax rates will come down in 2018, making the next few trading days your best opportunity for taking tax losses on any underwater positions that may take time to recover. With investors facing higher tax liabilities in 2017 than next year, the benefit of writing off a loser is that much greater.
Of course, we prefer to avoid taking any losses and run the Energy & Income Advisor Portfolios with an eye toward long-run returns. However, given the sector’s recent down-cycle and the topsy-turvy performance of many energy sub-industries over the past few years, we have a few positions that haven’t worked out because of timing issues or a faulty investment thesis. These sales will help to offset the handful of gains that we took over the course of the year.
Focus List: Upgrades and a Value Swap
We swap one value-oriented play on the Permian Basin for one that offers exposure to more near-term upside catalysts.
Paradigm Shift in MLP Land
Big changes are afoot in the midstream segment. Many master limited partnerships appear to have taken Enterprise Products Partners LP’s lead and shifted their focus to building distribution coverage and reducing equity. We explore which names will be able to make this transition with relative ease and which names face more of a slog to put themselves on a path to sustainability.
Planning for a Pullback
An environment where oil prices remain lower for longer favors US independent exploration and production companies that own high-quality assets in the lowest-cost shale plays.
The best upstream operators continue to reduce their per barrel production costs through efficiency gains and enhanced drilling and completion techniques that boost per-well output. Some of the strongest names can generate a decent return on capital with oil prices in the mid-$30s per barrel.
Despite significant volatility, crude-oil prices have trended lower since the beginning of June. Our near-term outlook calls for West Texas Intermediate (WTI) to tumble into the $30s per barrel over the next one to three months, a period of seasonally weak demand.
This weakness could create another opportunity to buy our favorite exploration and production names.
International Intrigue
Our International Portfolio’s conservative allocation weathered the selloff in energy-related equities with aplomb and has continued its strong performance in 2016. The handful of names in our aggressive sleeve have also rallied hard this year. We revisit out strategy for the back half of the year.
Pre-Earnings Potpourri
With second-quarter earnings season about to kick off for the energy sector, this installment of Energy & Income Advisor tackles a number of recent developments affecting specific master limited partnerships and midstream operators and takes a look at our International Portfolio holdings.
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Live Chat with
Elliott and Roger on Oct. 29, 2018
Portfolios & Ratings
Model Portfolios
Balanced portfolios of energy stocks for aggressive and conservative investors.
Coverage Universe
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
MLP Ratings
Our assessment of every energy-related master limited partnership.
International Coverage Universe
Roger Conrad’s coverage of more than 70 dividend-paying energy names.
Experts
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Elliott H. Gue
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor
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Roger S. Conrad
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor