The Sky is Falling . . .by James Dondero
Chicken Little is a large MLP investor.
In the recent period of declining crude prices, virtually all
energy-related assets have been impacted, including MLPs – despite their largely fee-based
business models. Since the beginning of the year, MLPs (as measured by the Alerian MLP Index,
AMZ) have lost -22.4%, underperforming the S&P 500 Energy Index and only somewhat bettering
crude itself (Figure 1). What makes MLP underperformance unexpected is the substantially lower
direct commodity exposure. Most MLP revenues are derived from fixed fee contracts, many with
sizable minimum volume commitments.