Pointe Capital Management's Dan Willard On How Black Monday Affected MLPs
While investors and traders were focused on many of the tech and social media stocks that plunged on Monday, the MLP sector may have drifted under the radar.
Speaking to Benzinga, Dan Willard of Pointe Capital Management stated that Monday was a "tough" day for MLPs with the index down 3.8 percent and now 28 percent lower year-to-date. In fact, he noted that some of the "worst hit" names in the group are actually some of the "highest quality names."
Willard said most MLPs should not be highly correlated to oil as most firms operate in the midstream part of the value chain. As such, they don't own the commodity but merely provide a service to major oil companies that do own the oil. With that said, the expert did admit that MLPs are correlated to oil over the short-term.
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Willard also noted that the current collapse in oil prices is due to an imbalance in supply and demand. What's unique about the situation is demand is growing, but supply is growing faster as Saudi Arabia continues to focus on maintaining its market share.
"Rather than trim supply out of OPEC, it has put the pedal to the metal," Willard stated. "We're seeing record production numbers out of Saudi Arabia. At the same time, we're seeing record numbers out of the U.S. as well."
Commenting on the Alerian MLP ETF (NYSE: AMLP), Willard pointed out that its yield has been over 7% as of Monday. He stated that "it is really hard to believe some of the metrics" as entities like Alerian are growing distributions, have "solid" balance sheets and are "well prepared" for growth.
Willard concluded that other than a handful of commodity sensitive companies, MLPs generally had a "solid" second quarter. Moving forward, investors may see some deceleration in growth within the group, but that is only a medium-term event.
"Again, they are still growing."
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