MLP STRATEGY

This is a high-yielding portfolio (with tax-deferred income) composed of US exchange-traded Master Limited Partnerships (high-quality pipelines and energy facilities), with high current income and strong prospects for growth of distributions. One can think of Master Limited Partnerships (MLPs) as “utilities without walls” — that is, they are utility-like companies with fewer restraints on their ability to grow than conventional utilities. They evolved as a tax-efficient way for large energy companies to operate their infrastructure assets. MLPs generate stable and consistent cash flow from long-term contracts for the transportation, processing, and storage of natural gas and oil products, thus providing “quality income.”

VIDEO What Are MLPs? Roger Young, Portfolio Manager

Our portfolio invests in midstream energy infrastructure pipelines that generate cash flows from the transportation, processing, and storage of natural gas, crude oil, and refined petroleum products (jet fuel, gasoline, or fuel oil).

Investment Philosophy

The MLP Strategy is a fine example of our firm’s basic investment philosophy: high-quality stocks plus high yield plus growth of yield result in high total return. Many studies, including our own, show that financially strong stocks with rising dividends offer the most consistent performance, as well as the highest added value. Over time, increases in dividends tend to induce increases in the price of the equity producing those dividends. This internal compounding is a powerful component of the long-term returns from stocks, as evidenced in the work of Ibbotson and others. In addition, dividend growth provides other benefits to investors: inflation hedge, ability to meet annual expenses from income alone, and positive signal from management about future prospects for a company, to name a few.

Investment Objective

Our objective is to provide high, stable current income, growth of income, and growth of the underlying principal from a portfolio of high-quality companies with real assets involved in reliable, repeatable businesses that will likely benefit from the global infrastructure build-out. This strategy seeks to exceed the total returns available from fixed income of intermediate or long-term duration without increased volatility, and to provide an alternative that’s not correlated to the broad equity markets.

Investment Strategy

The portfolio invests in midstream energy infrastructure pipelines that generate cash flows from the transportation, processing, and storage of natural gas, crude oil, and refined petroleum products (jet fuel, gasoline, or fuel oil). Holdings have long-life assets and long-term transport contracts. We favor MLPs with strong general partners that hold a meaningful ownership interest, and companies that have fee/contract-based revenues as opposed to commodity-based. We focus on companies with internal and external growth opportunities that are easily able to sell bonds and equity.

Composite Inception Date: December 2008
Portfolio Manager: MHI Investment Team

Performance and portfolio information can be obtained by contacting MHI. If you are an advisor/financial professional, you may log on to our Advisor site to obtain this information.