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Posts Tagged ‘MLP’

What? Municipals on Top?!

January 15th, 2016 by Kurt L. Smith

Happy New Year!  Municipal bonds were one of the best performing asset classes for 2015*.  That doesn’t happen often (ever?)!  Municipal bonds didn’t post stellar returns but compared to the sub-par performance of almost every other asset class, municipal bonds came out on top.

Obviously we don’t invest in municipal bonds because we think they will be the top performing asset class each year.  We like the income, particularly tax-free income.  Municipal bonds may not have the sex appeal of other, perhaps higher yielding investments but they also do not have some of the risks.  In this era of low (to no) interest rates we have seen others chasing yields in all kinds of asset classes from master limited partnerships (MLPs) to high yield junk bonds and even in higher dividend stocks.

2015 saw some investments for yield really take it on the chin.  According to The Alerian MLP Index, Master Limited Partnerships (MLPs) as an asset class lost about forty percent of their value last year.**  Forty percent is enough to whack off many years of projected income and price fluctuation is but one of the risks associated with MLPs.  Sure the yield (income) investors were hoping to grab is still there…unless the MLP cuts the dividend rate, another risk associated with MLPs.  No doubt MLPs performed well for many years prior to 2015, but then, bam, the trend moves in another direction leaving MLP investors to try and salvage their investment. (more…)

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