Given the heightened volatility in the MLP market over the past several months, we found this piece from Cumberland Advisors to be both timely and insightful. The author points to several causes of the sector’s recent decline, including the precipitous fall in crude prices, investors’ expectation of rising rates and lower overall trading liquidity, coupled with some forced selling by closed-end MLP funds. Mr. Daskin’s outlook for the MLP space is positive, given the attractive tax-advantaged yield levels (both on a relative and absolute basis) and attractive underlying valuations, post-selloff, particularly for the larger MLPs whose business models are more akin to “toll-roads,” and as such, are less exposed to commodity prices, in general.
We enjoyed reading this article in the January 12, 2015 edition of Barron’s because it aligns with Houston Trust Company’s long-term approach to equity investing. Stocks represent ownership interests in real assets, and we believe in evaluating their performance over the course of a full business cycle. As this article points out, over a rolling 15 year period there have been no intervals of negative returns in equities going back to 1871. And since equity returns appear to be mean reverting, the next 15-year interval might imply strong returns in order to compensate for the still below average trailing 10 and 15 year historical returns relative to the long term average.