UBS Exec Recommends Energy-Linked Partnerships
Master Limited Partnerships offer remarkable appeal as the space is up an average of 15.5 percent, Seth Radow, senior vice president of investments at UBS told CNBC Friday.
"Earnings visibility for the group is extraordinary. We think there is remarkable opportunity between now and the 5, 10, 15, even 20 years forward," Radow said.
MLPs are equity-like securities—many of these are pipelines in the energy sector—that offer high yield.
The asset class is worth $250 billion.
For the individual investor, he recommended two MLPs: Steel Path MLP Alpha Fund, which typically stays in the mid-stream space. Cushing MLP Premier Fund, on-the-other-hand, tends to take on more commodity exposure (coal, natural gas and oil).
The technology that has been used for natural gas, like hydrofracking and horizontal drilling, is now overflowing into oil space, he added. "Horizontal drilling ... 2010 was the first year in over twenty years that we saw an increase in oil production domestically from land-based rigs here in the United States. That's an extraordinary statistic."
Horizontal drilling refers to the drilling of an oil or natural gas well at an angle, so the well runs parallel to the formation containing the oil or gas.
"If you actually take a look in the oil space right now, 2010 versus 2009, the number of oil rigs in the United States increased by 83 percent [765 land-based rigs last year] for land-based rigs," Radow said.
In addition, he went on to say that if there is a rise in interest rates, MLPs will act like a "buffer" because of its rising dividend stream. "Over the last 15 years, MLPs on average have increased their distributions a little over 7 percent per annum [yearly] on average."
"If the increase [in interest rates] is extraordinary, not much will help you. But the fact is that if its even reasonable than the MLPs will substantially outperform that," Radow concluded.
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