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MLPs Follow Energy Prices Lower

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Prices for Brent crude oil have crashed around 54% over the past two years. And while energy master limited partnerships (MLPs) have shadowed energy prices by declining too, they’ve held up much better relative to crashing oil prices.

The JPMorgan Alerian MLP Index ETN (AMJ) has fallen around 18% during the past two years. The ETN has $4.3 billion in assets and its top holdings include Kinder Morgan Energy Partners, Plains All American Pipeline, and Energy Transfer Partners.

MLPs own, operate and build energy assets such as pipelines, storage facilities and processing plants.

The Alerian MLP ETF (AMLP) has declined 7.88% in two years and has slighty better relative performance compared to AMJ. The Alerian MLP ETF owns infrastruture partnerships that get the majority of their cash flow from the transportation, storage, and processing of energy commodities.

Besides tracking different MLP benchmarks, AMJ and AMLP use completely different product structures. AMJ is an ETN, which means owners absorb credit risk to JPMorgan, while AMLP is an ETF and carries no issuer credit risk.

Because they’re designed to pay out the majority of their operating cash flow in the form of dividends, MLPs hold an allure based on juicy yields. And compared to dividend paying stocks along with bonds, MLPs still offer attractive dividends.

AMJ carries a 12-month yield of 6.08% while AMLP is at 7.54%, according to Morningstar. By comparision, the S&P 500 carries a dividend yield of 2.01% while 10-year U.S. Treasuries yield around 2.16%.