Master Limited Partnerships have been absolutely pounded down into the ground and set on fire over the past couple of years. This chart shows the devastating downside to MLPs. It shows the trailing 3-year return for the Alerian MLP ETF (AMLP).
A dog’s breakfast! What happened?
The overwhelming majority of Master Limited Partnerships are tied into the oil and gas sector. When the price of oil went on a fire sale, so did these various MLPs. The following chart shows the price of oil over the past 3 years. It looks suspiciously similar to the chart for MLPs. You can go here to look at other crude oil price charts.
If you somehow had the foresight to not invest in the oil sector, your returns would have been better – although still not great. Want to know a quick way to pick MLPs doesn’t require buying a fire extinguisher? There one simple screening trick that I use to select MLPs without needing insurance. But it is a bit odd and you most definitely won’t find it talked about on any other site.
Average True Range Normalized
What??? What is all that gobbledegook? Averge True …..come again? Before you angrily kick your laptop screen or place your tablet under the back tire of a tractor, let me explain. The quick answer is that we look for low volatility. The boring answer is coming up next so either strap yourself to get really bored or just skip the next paragraph.
Volatility is basically the spread on the up and down movement of share prices. There are many ways to measure volatility. For instance, some volatility calculations use daily, weekly or monthly closing prices. This volatility ratio will look different if you include not just the closing price but also the daily high and the low. A stock might go up and down during the day but close out flat. It could still be considered volatile. The ATRN method uses the daily high and the low but it also uses the previous days closing value. This gives a clear picture of intra-day volatility that includes any overnight price gaps. This is your True Range. Rinse and repeat this measurement over the past x days and you have an an Average True Range. Next, the range is Normalized against the share price so you have a standardized number to compare between companies. Now you have your Average True Range Normalized.
That wasn’t too bad – was it?
Average True Range Normalized will help you find slow, steady and boring stocks (or MLPs). No drama, no fire sales, just steady smooth sailing for the most part.
The Simple 1-Rule System
Ready for the rule? Look for the MLPs which have the lowest 100 day ATRN. The chart below is a simulated backtest which re-examines the MLP landscape every year and holds the 10 stocks with the lowest ATRN score.
Just for a little contrast, let me show you the worst ranked 10 stocks and how that system would have worked out.
88% drawdown over the past 2 years would be very hard to choke down.
If you want to use this simple system, first sign up with this affiliate link for Portfolio123. You will get an extra 15 days to trial the software and if you do end up using it, I get a small kickback from the company which keeps me incentivized to keep giving you great investing models. But the software is awesome. I use it for my consulting business which includes large family offices and hedge funds.
After that, use the following Master Limited Partnership – Low Volatility model link.
For those of you wondering what is being recommended right now, here is the list.
|AHOTF||American Hotel Income Properties REIT LP||8.27||Real Estate|
|PMULF||Pure Multi-Family REIT LP||6.52||Real Estate|
|ATAX||America First Multifamily Investors LP||8.77||Financials|
|FUN||Cedar Fair LP||5.81||Consumer Discretionary|
|ESBA||Empire State Realty OP LP||2.22||Real Estate|
|APU||Amerigas Partners LP||8.23||Utilities|
|BIP||Brookfield Infrastructure Partners LP||4.9||Utilities|
|BEP||Brookfield Renewable Partners LP||6.06||Utilities|
|WPT||World Point Terminals LP||8.01||Energy|
Happy low volatility investing in Master Limited Partnerships. I hope this tip, compliments of Backtest Investing, is useful to your future MLP selection – even if it is a bit odd.