The Alerian MLP Index is an interesting trend. It’s down -61% since inception. The Alerian MLP Index is a gauge of energy infrastructure Master Limited Partnerships (MLPs) whose constituents earn the majority of their cash flow from midstream activities involving energy commodities. We’ve been noticing recently it has trended down to a lower low that 2016 while WTI Crude Oil Spot Price is much higher than it was then.
It’s an interesting divergence and may be an example of an asymmetric risk-reward if it reverses back up from this relatively low level. In theory, after such a downtrend further downside could be limited and the potential for upside greater. Of course, The Alerian MLP Index is an index, so it cannot be invested indirectly. I’m using it only as an example. The index could keep trending down much lower than anyone believes it can.
It is always essential to predetermine risk in advance. There are many things that could drive MLP prices lower, including trade deals, or lack thereof.
It will be fascinating to see how this trend unfolds and what it may be signaling about the global macro environment.
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