MLPs 2.0: Smaller Space, Big Impact

A leaner MLP space remains attractive to investors as it outperforms broader energy market, according to Alerian.

The MLP market has gotten smaller over the past few years due to a combination of consolidation and a lack of many new midstream companies entering the space. At first glance it would appear the space is weakening, but the opposite is true as public midstream companies have been outperforming other publicly traded energy corporations, including integrated majors.

Lower oil and gas prices saw some midstream companies leave the MLP space, but this has helped to make the segment more attractive to investors seeking to weather this downturn. According to an Alerian report, “Energy Investing Showdown: Midstream/MLPs vs. Majors vs. Broader Energy,” this outperformance by midstream MLPs can be seen as a defensive measure against volatile oil and gas prices. Since most midstream companies have fee-based operations, they are less exposed to fluctuating prices.