Summary
- Energy stocks have been volatile at times in the last year, but MLPs have provided a robust yield with somewhat lower risk at times.
- With a concentrated low-P/E portfolio and robust yield, AMLP looks favorable from a fundamental perspective.
- Long-term technicals warrant caution.
MLP stocks have been trending higher against the broad market ever since oil prices turned negative. While the energy sector has had its significant drawbacks and as some defensive areas have sharply underperformed lately, AMLP has held in there.
There’s been solid relative strength for nearly three years with the ETF. Is there more upside against SPY to come? Let’s dig into AMLP.
MLPs Beating SPX Last 3 Years
According to Alerian , the Alerian MLP ETF ( AMLP ) delivers exposure to the Alerian MLP Infrastructure Index (AMZI), a capped, float-adjusted, capitalization-weighted composite of energy infrastructure Master Limited Partnerships (MLPs) that earn the majority of their cash flow from midstream activities. For background, MLPs build, own, and operate energy infrastructure assets such as pipelines, storage facilities, and processing plants. These assets play a vital role in connecting domestic energy production with local and global demand.
MLPs offer investors a relatively high-income yield with the potential for real asset exposure and appreciation. MLPs play a critical role in the energy industry by connecting exploration and production firms with end users. AMLP specifically does not issue complicated K-1s but rather sends investors annual 1099s which makes for easier tax reporting. Dividends are generally qualified in nature with a portion of distributions being tax-deferred, per Alerian. AMLP does not employ leverage and has liquidity like any heavily traded exchange-traded product.
AMLP has a high 0.87% annual expense ratio and pays a quarterly dividend. Right now, the dividend yield is 7.4% and the fund is up more than 6% in 2023. Total assets are high at nearly $7 billion with a median 30-day bid/ask spread of just two basis points. Shares have a history of trading very close to NAV, which I like to see.
This is not a fund for those shy on volatility. AMLP’s standard deviation is near 50% - about twice the market’s average in the past three years. In my assessment of the portfolio, I see that the fund is concentrated in oil & gas pipeline firms and companies that process and refine energy products, as to be expected with such a niche fund. It’s strictly a domestic fund, so changes in the economy, particularly interest rates, will impact the NAV.
AMLP: Sector & Geographic Breakdowns
AMLP is also heavily concentrated in the top 10 holdings. According to Morningstar , 91% of AMLP’s assets are in its top 10. So, owning the fund requires constant research of these high-yield energy companies.
AMLP: Top 10 Holdings & Turnover
With a price-to-earnings ratio of 10.9 per Morningstar and long-term earnings growth of more than 5%, the PEG ratio is decent near 2.0, but that’s not a screaming buy to me. What I like though is that the portfolio has a price-to-sales ratio is just 0.5 and that is quite low for this mid-cap value fund. It also features strong momentum over the past five years.
The Technical Take
With an attractive valuation and high yield, what does the chart say? The near-term view is bullish. Notice in the chart below that AMLP is in a steady uptrend with higher highs and lower lows. Active investors are well served to buy on approaches of the support line and trimming positions when AMLP nears the uptrend line. You can also monitor RSI momentum trends – buying on moves to near 30 and selling when the RSI nears 70. But what about the long-term view?
AMLP: Near-Term Chart Suggests Bullish Trending May Persist
So, here’s where things get a bit dicey for the bulls. The below zoom suggests there could be a wave of bearish supply of shares wanting to be sold from the old prior lows in the upper $30s to mid-$40s. Also, I see another layer of high volume by prices between $49 and $57 that poses issues for the longs here. Overall, a tactical approach is warranted from a technical point of view.
AMLP: Long-Term Chart Suggests Caution, Bearish Overhead Supply
The Bottom Line
With a concentrated portfolio of low P/E stocks and a high yield, I like AMLP here but recognize some potential technical issues going forward. Don’t expect a home run from this one, but rather buy dips and trim rips.
For further details see:
AMLP: A Big Yield With A Low P/E, Technicals Less Optimistic