Anyone here invest in this asset class? How do you evaluate them from a fundamental standpoint? Are pipeline negatively or positively or uncorrelated to energy prices etc? The way I see it is that pipelines are practically monopolies like railroads, with solid cash generating capabilities. But evaluating them from a fundamental perspective is more difficult
Also when you buy them for your retail account, is the tax deducted automatically or do you have to pay it on a separate form?
MLPs are usually treated just like partnerships so you will receive a K-1 every year with your allocation of the partnership’s taxable income. No taxes are usually withheld from distributions for a domestic account. Can’t help much on the fundamentals other than a) there is some very real capex in this world and b) some transmission volumes are actually negatively correlated with the commodity’s price. For example, when the price of natural gas increases it will cause users to shift to other fuels in their portfolio which reduces demand and the amount of gas going through the pipe.
The K-1 requirement is what has kept me away. K1s can be quite simple or mind numbingly complex, it just depends on the entity and since I never found an “example” K1 from, say a Kinder Morgan owner, I stayed away. I don’t plan to buy any because I’d have to tread very carefully since I work for a company that does a lot of business with Kinder Morgan and I don’t believe I can own any KM stock or shares in any of their LPs.
MLPs can get pretty complex especially regarding taxes. We looked into investing at these at my last firm but decided against it due to the potential complications regarding taxes. There are ways to avoid K-1s and UBTIs by using mutual funds, ETFs, or CEFs, but they have their drawbacks too. We didn’t do individual stock investing so we never got into valuing MLPs on fundamentals. Regarding correlation to other asset classes, there is low to moderate correlation to energy prices and stocks. There is little to no correlation with bonds. If you’ve never been, look up “naptp.org”. It’s a good reference. Also www.steelpath.com is a firm in dallas, Texas started by two guys who were MLP analysts with GS and left to start their own fund. They have some nice research usually.