MLPs off to a rip roaring January

MLPs didn’t have their best year in 2012, being up just 4.8% on a total return basis, vs the SP500 at 16%. It was the first time in 12 years that MLPs underperformed the SP500. That makes me even more interested in them for 2013. Lets look at where MLPs stand today.

At the end of Nov 2012 I wrote about the compelling value in the MLP sector and how they could be setting up for a nice rest of 2012 and early 2013. Also, as I’ve written in the past January tends to be the best month of the year for MLPs with the avegrage Jan gain of around 4.6%. The chart below shows where MLPs are trading now.

AMJ chart Jan 2013


Jeez. What a move! MLPs are breaking out to new highs and are up about 7% in Jan so far. Its the second best January ever for MLPs. The move has been so fast that it was hard to catch it all but doable. Time will tell if they hold on to these highs, closes above $41 in AMJ, but history says these strong early returns bode well for the sector going forward.

On the valuation front MLPs remain compelling. The chart below updates the historical yield and spreads for the sector.

MLP spreads and yields Jan 2013


Spreads indicate great value in the sector and historical yields are only slightly below average. This is unusual for income assets today. Most income assets today are showing below average spreads AND way below average historical yields. The charts below tell the story.

Bond and HY spreads to MLPs Jan 2013


The probability of strong MLP returns in 2013 look pretty good. I’d say maybe 12% to 20% returns for the sector. Compare other dividend or income sectors these potential returns compelling.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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