Energy Master Limited Partnerships
Eoin Treacy's view This sector had been among some of the best performers since the 2008 lows, not least because it offers exposure to the energy sector and offers some of the highest yields available anywhere. However the sector was losing consistency as early as June. (Also see Comment of the Day on June 8th). At the time an increasing number of partnerships were sustaining breaks below their respective 200-day MAs and the events of the last two weeks have extended those declines.
Yields for the sector have improved considerably and many partnerships have steady cashflows and strong records of payouts. Therefore while there is undoubtedly a risk that dividends will be cut if a deeper economic slump follows the stock market decline, MLPs are likely to be a fertile seed bed for yield hungry investors once they demonstrate that demand is beginning to return to dominance. This table of 41 MLPS has an average indicated yield of 7.21% at present.
The Alerian MLP Index pulled back sharply and found at least short-term support yesterday. A short covering rally appears to be underway but it is too early to talk about a medium-term low having been reached. This is an attractive sector but support will have to be found above a low on a pullback to suggest a return to a demand dominated environment. A sustained move back above the 200-day, following such a move would confirm it.
I will review cloud computing shares tomorrow.