After returning nearly 20% over the past year through mid-January, Akyol believes the firm "remains well positioned to continue to expand its asset base across the energy logistics value chain for oil, natural gas and natural gas liquids." He sees continued development of shale resources as a source of profitable investment, enabling the firm to accelerate distribution growth."
Akyol also recommends Plains All American Pipeline (NYSE: PAA), whose yield and total returns exceeded EPD's over the past year. He sees even greater near-term upside given its solid forward growth in distributable cash flow, which doesn't take into account three potential acquisitions.
MLP Funds
The history of MLP funds is brief, with closed-end versions being the oldest, dating back to 2004. According to Morningstar, the first out of the gate was the $1.6 billion Tortoise Energy Infrastructure (NYSE: TYG) fund. With an emphasis on distributions, producing a current yield of 5.5%, the fund's focus on energy transport has paid off well.
Despite a stated annual expense of 1.74%, TYG has been delivering equity-market-topping returns. In 2011, it was up 10.7%. Its three-year annualized gain was 40%, and the fund's five-year return was 10.3%. Since inception, TYG has generated average yearly returns of 13.3%.
Being a closed-end fund, TYG's market price isn't the same as its net asset value. As of late January 2012, new investors would pay a 14% premium for each dollar of assets the fund owns. And like most other closed-end funds, TYG relies on leverage to boost returns, which currently stands at 19.3%.
The first MLP exchange-traded product-the JP Morgan Alerian MLP (NYSE: AMJ)-came to market in 2009 in the form of an exchange-traded note. As such, the security comes with counterparty risk to the bank. But otherwise, AMJ is an efficient way to gain exposure to the industry benchmark. And demand has turned the ETP into the industry's largest with $3.7 billion in assets.
Its annual expense of 85 basis points does cut into returns. Last year the fund was up 13.21%, inclusive of an annual yield of 5.46%. Annualized return since inception was 22.36%, 95 bps below the index's rate of return.
Open-end mutual funds are the most recent addition to the MLP investment universe, brought to market first by Steelpath Advisors. Its MLP Select 40 Fund (MLPFX) started up in March 2010 and currently has $753 million. Last year, it delivered total returns of 6.54% (net of annual expense of 1.1%), fractionally having exceeded its yield of 6.35%. But since its inception, its annualized rate of return was a healthier 11.94%.
With only 77 energy MLPs and fewer that offer significant liquidity, funds end up owning many of the same partnerships. However, as indicated above, performance among funds varies significantly. Therefore, when selecting a product, advisors should be mindful of sales loads and expenses, leverage, volatility, MLP selection process and MLP-generated unrelated business tax income. These distinctions have made a difference.
Risks
