Swank Capital

MLP Asset Class | Introduction

Master Limited Partnerships (MLP) Overview

Energy Infrastructure Master Limited Partnerships (MLPs) provide transportation, storage, processing, refining, marketing, exploration, production or mining of any mineral or natural resource. Interests, or units, trade on public security exchanges exactly like the shares of a corporation. Midstream MLPs, a focus of our investment portfolios, typically operate “toll road” business models. They earn fees for the services they provide, often without taking ownership of the physical commodities they transport and store.  Upstream MLPs, another focus of our investment portfolios, typically engage in the exploration, development, and acquisition of oil and natural gas producing properties, including exploration and production of oil and natural gas at the wellhead for sale to third parties.  Upstream MLPs offer the opportunity for current income with exposure to crude oil and natural gas prices.

Structured as limited partnerships, MLPs are generally not subject to corporate-level taxes. They distribute the majority of their cash flow to investors in the form of quarterly distributions, which are largely treated as return of capital, making investing in MLPs highly tax-efficient.

As a group, Midstream MLPs have a long history of growing distributions faster than inflation, making them a useful inflation hedge, as evidenced by the fact that each year from 2000 through 2011, Midstream MLPs’ median annual distribution growth has exceeded the U.S. Consumer Price Index.*

Potential Benefits of Investing in MLPs

  • Opportunity for Growth and Current Income
  • Potential Inflation Hedge
  • Tax Advantaged Yields

*Source: MLP public filings and U.S. Bureau of Labor Statistics