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Market Update: 11-06-17

MLP WEAKNESS APPEARS OVERDONE

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

Master limited partnership (MLP) weakness appears overdone. The Alerian MLP Index has lost 9.3% in 2017 year to date, well behind the S&P 500 Index’s 17.5% return and even the energy sector’s 6.3% loss. More recent performance is particularly surprising given the 30% rally in WTI crude prices since June 21, 2017 — the Alerian MLP Index has been flat over that roughly 4.5-month period, while the S&P 500 has returned 7%. In an environment where many investments look stretched, this is one that has lagged behind and could offer potentially more upside. Here we discuss several reasons the group has struggled and make the case that it may be due for a turnaround.

WHAT’S WRONG?

We see several reasons for MLPs’ recent underperformance, including: Distribution cuts. Several MLPs have cut their distributions over the past three months, hurting those securities and the group on spillover concerns. These securities are generally held for their income so distribution cuts can be very...

Download the complete PDF with graphs here.

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