How does an MLP Index work
In the same way that an MLP unit is very similar to a corporation share, an MLP (Master Limited Partnership) index bears considerable resemblance to a stock market index and is used to benchmark the performance of various MLPs. While stock indexes can be global (representing all companies in a country /stock exchange) or sectoral (particula r market segment like high technology, banks, etc.), a MLP Index tracks only firms structured as master limited partnerships.
The most accepted MLP index is the Alerian MLP Index, which is a composite of the 50 most remarkable strength MLPs prepared by benchmark & Poors using a float-adjusted market capitalization methodology. The index is disseminated by the New York Stock Exchange real-time on a price return basis (NYSE: AMZ). The corresponding complete return index is calculated and disseminated everyday through ticker AMZX.
An index is classified according to the manner used to determine its cost. In a price-weighted index, the cost of each component stock is the single factor determining the index value. On the other hand, for a capitalization-weighted index, the range of each component company determines the index value. The Alerian MLP is of the another variety. It is also calculated using float-adjusted weighting, that is, considering all units in free float or freely accessible for trading, in contrast to full weighting where all superior units are included.
The Alerian MLP Index has specified above-average returns in the recent past, averaging a healthy 11.90% from 1995 to 2008. Despite the 36.90% a collapse in 2008 on account of the wide-ranging economic downturn, it even constitutes a sound investment selection.
The five MLPs that keep the highest weights in the Alerian MLP Index are:
1. Enterprise Products Partners (EPD) with 14.1% weight - Headquartered in Houston, EPD is a member of the Fortune 500. It owns onshore and offshore genuine gas, genuine gas liquids, crude oil and petrochemical pipelines and associated facilities. EPD units currently yield 6.29%.
2. Kinder Morgan Energy Partners (KMP) with 11.8% weight - opening as an Enron spin-off in 1997, it cannot demand an noted birth, but Houston-based KMP has strongly established itself as a crucial contender in the petroleum and gas transportation market, furthermore operating coal and other dry-bulk materials terminals. KMP units currently yield 6.80%.
3. Plains All American Pipeline (PAA) with 6.0% weight - Also from Houston, PAA owns about 37 million barrels of terminalling and storage capability and 15,000 miles of crude oil pipelines, most ofall in Texas, California, Oklahoma, Louisiana and the Canadian provinces of Alberta and Saskatchewan. PAA units currently yield 4.68%.
4. Energy Transfer Partners (ETP) with 5.6% weight - A Fortune 500 member based out of Dallas, ETP owns genuine gas pipelines and associated facilities, also marketing propane in 40 US states. ETP units currently yield 7.81%.
5. Magellan Midstream Partners (MMP) with 4.9% weight - Headquartered in Tulsa, MMPs portfolio includes over 80 petroleum products terminals, a 9,500-mile petroleum products pipeline arrangement and an 1,100-mile ammonia pipeline arrangement. MMP units currently yield 6.28%.
The most accepted MLP index is the Alerian MLP Index, which is a composite of the 50 most remarkable strength MLPs prepared by benchmark & Poors using a float-adjusted market capitalization methodology. The index is disseminated by the New York Stock Exchange real-time on a price return basis (NYSE: AMZ). The corresponding complete return index is calculated and disseminated everyday through ticker AMZX.
An index is classified according to the manner used to determine its cost. In a price-weighted index, the cost of each component stock is the single factor determining the index value. On the other hand, for a capitalization-weighted index, the range of each component company determines the index value. The Alerian MLP is of the another variety. It is also calculated using float-adjusted weighting, that is, considering all units in free float or freely accessible for trading, in contrast to full weighting where all superior units are included.
The Alerian MLP Index has specified above-average returns in the recent past, averaging a healthy 11.90% from 1995 to 2008. Despite the 36.90% a collapse in 2008 on account of the wide-ranging economic downturn, it even constitutes a sound investment selection.
The five MLPs that keep the highest weights in the Alerian MLP Index are:
1. Enterprise Products Partners (EPD) with 14.1% weight - Headquartered in Houston, EPD is a member of the Fortune 500. It owns onshore and offshore genuine gas, genuine gas liquids, crude oil and petrochemical pipelines and associated facilities. EPD units currently yield 6.29%.
2. Kinder Morgan Energy Partners (KMP) with 11.8% weight - opening as an Enron spin-off in 1997, it cannot demand an noted birth, but Houston-based KMP has strongly established itself as a crucial contender in the petroleum and gas transportation market, furthermore operating coal and other dry-bulk materials terminals. KMP units currently yield 6.80%.
3. Plains All American Pipeline (PAA) with 6.0% weight - Also from Houston, PAA owns about 37 million barrels of terminalling and storage capability and 15,000 miles of crude oil pipelines, most ofall in Texas, California, Oklahoma, Louisiana and the Canadian provinces of Alberta and Saskatchewan. PAA units currently yield 4.68%.
4. Energy Transfer Partners (ETP) with 5.6% weight - A Fortune 500 member based out of Dallas, ETP owns genuine gas pipelines and associated facilities, also marketing propane in 40 US states. ETP units currently yield 7.81%.
5. Magellan Midstream Partners (MMP) with 4.9% weight - Headquartered in Tulsa, MMPs portfolio includes over 80 petroleum products terminals, a 9,500-mile petroleum products pipeline arrangement and an 1,100-mile ammonia pipeline arrangement. MMP units currently yield 6.28%.
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