Master Limited Partnership

Investors in energy-focused master limited partnerships could be understood crying for mercy. The sector rebounded late last week, but the midstream benchmark Alerian MLP index is still down a brutal 16% in January, and 46% for the past year. The problem here, as with global markets, is falling crude-oil prices. In good times, MLPs do not correlate with oil prices, since they mostly earn revenue from long-term contracts based on volumes of gas and oil they transport, but in bad times, they do. U.S. crude bounced on Thursday and Friday to $32 a barrel from a low near $27, but there is no denying that oil is likely to stay lower for longer. On Friday, Moody’s put 122 energy companies on review for downgrades, citing “a prolonged period of oversupply that will continue to significantly stress the credit profiles of companies in the oil-and-gas sector.” Moody’s sees oil at an average price of $33 a barrel in 2016 and $38 [...]

Declining oil prices have victimized two leveraged exchange traded notes ("ETNs") tracking master limited partnerships ("MLPs"). UBS Investment Bank announced the closing of ETRACS 2xMonthly Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEArca: MLPL) and ETRACS 2x Monthly Leveraged S&P MLP Index (NYSEArca: MLPV). MLPV “will be mandatorily redeemed in accordance with the terms of the Securities as a result of the occurrence of an Acceleration Event, triggered as a result of the intraday indicative value of the Securities being equal to or less than $5.00 on January 20, 2016,” said UBS in a statement. Previously popular income-generating asset classes, MLPs and sector-related exchange trade products have collapsed together with oil and natural gas prices last year, a theme that has extended through this year. Investors are concerned that the traditionally attractive dividend-paying asset would no longer be able to maintain its steady payouts as U.S. oil output starts to drop  after the massive decline in crude prices. In the [...]