.....As You wrote 'em. Dyslexia is a tragic thing!

I know you too are a MLP fan, so would really value your thoughts. 

 

'Fan' it is said is short for 'fanatic.'  Guess I qualify.

I'm doing a bit of analysis on your listing and I'll get back to you soon.

Regards.

Cliff 

What an interesting list.  I've been struggling recently with how to add some MLP/Royalty Trusts without sacrificing diversification.  I had looked at BPL and PBT.  Thanks for this - I'll put them into my study grid & get back to you.

Anyone considered SPH to compliment APU? I in turn like TPP because of their diversified approach....pipelines and now a water transport of commodities.

Mariner.....

What about the tax consequences?? - see this M* article:
http://news.morningstar.com/articlenet/article.aspx?id=203288 

I'm in an IRA - I don't want to be taxed.

The best way to go may be a closed end fund like MTP.  It owns all the key MLP's.  I believe it is considered a stock so it would not have the tax issues for a retirement account.  I own it.

Mitchelg

kittydog2:

So feel free to rate my allocation mix, which has some Josh Peter-pick income growers mixed in with some dull money spinners. I've also allocated across regions and pipeline ect. types:

 
1.0% APU  

1.5% BPL

1.5% EDP

1.5% ETP

2.5% KMP

2.0% MMG

1.0% MMP

1.0% OKS

1.0% PAA

2.0% NS

1.0% SHL

1.0% SXL

2.0% XTEX

1.0% XTXI

=20%

 

Kitty

The bottom line is I like your approach because . . . . well, because that's what I did.  I decided I liked the businesses of the pipeline MLPs and I liked their business model (no double taxation) and I liked the cash return.  I wanted to be heavily invested in MLPs but I wanted to minimize company-specific risk so I purchased more than a few.

It's interesting that you titled your post 'Index Fund' because there already is an index.  You can view the constituents and the history of the index at www.alerian.com.  The Alerian MLP Index consists of 50 companies - not all strictly pipelines - an average holding of 2% each.

By way of comparison, you listed 13 companies (actually 14 but I'm ignoring SHL because I don't know what it is) that are in the index.  Your 13 companies comprise 51.7% of the index weighting.  The overall market performance of your 13 companies is probably going to wind up pretty close to the Alerian index.

I computed the weighted yield of your 13 companies - it's 6.13% on yesterday's closing prices.  The yield of the Alerian index is 6.90%.  The weighting of your 13 companies is a little heavier than the index toward the general partner entities with lower but growing distributions (like Magellan Holdings MGG and the Crosstex entity XTXI).  I expect that your distribution growth rate will exceed that of the overall index . . . . but you're taking on a bit more risk of a distribution cut because of the nature of the compensation deals between the limited partner entity and the general partner.

I found it interesting that you allocated twice the amount to the Magellan GP, MGG, than you did the Magellan limited partner entity MMP but only half as much to the Crosstex GP, XTXI, as you did the Crosstex limited partner entity XTEX.  Were you swayed by Josh's personal holdings? 

As for me, I hold 19 entities for about 32% of my total - an average holding of 1.68%, not that much different than what you're thinking.  My current yield on the 19 is 6.62% vs. the 6.90% index yield and the recent growth of distributions has been just a tad over 7%.  My 19 make up 63.4% of the Alerian index so my market performance is about the same.  (The index is down 1.50% YTD and my 19 are down 0.64%.)

My largest three holdings are Magellan MMP and MGG at 6.5%, Kinder Morgan KMP and KMR at 5.2% and Oneok OKS at 2.6%.

The largest three components of the Alerian index are Kinder Morgan KMP and KMR at 16.0%, Enterprise EPD at 10.6% and Plains All American PAA at 5.7%.

I also looked at the ratio of current price to Morningstar fair value for your 13 companies.  If you bought them all today in equal proportions you'd be buying at 84.7% of fair value.  According to Morningstar, the best values today are NuStar NS, Energy Transfer ETP, Plains All American PAA and Crosstex XTEX.

I've just assumed that you're contemplating this commitment in a taxable situation.  I estimate that, if you were to commit $100,000 to these 13 companies that you will receive distributions over the next 12 months of $6,130 and that you will owe about $153 federal tax on that distribution.  (OK, I can't be that precise but you know what I'm saying . . . . )  

Regards.

Cliff 

 

 

 

My tax accountant says she does it on turbo-tax. You read the numbers off the form they send you and input them. I paid no extra charge over my regular return for this service. Last year, I had 8 MLP's and only one (APU) failed to send the info on time. A call to investor relations sorted that one out in two minutes. There's a web page that has all the tax info for most of the MLP's and when they're going to have it ready, I'll try to find it again.

 According to my tax person and Josh Peters, these investments should not be in a retirement account.

Thanks, Cliff, I am a medium-level knowlege investor and am just starting to allocate in this asset class. And yes, I've been swayed a bit by Josh Peters in my picks. He's not the be all and end all, but he's a good place to start for someone like me.

For my investment strategy, I don't mind giving up some yield today for a faster than average-growing income stream tomorrow. In the Josh-model, I'd call myself 70% harvester, 30% builder, even though I live off my investments.

A couple of more questions, if you don't mind:

-Can you explain the difference in risk between being a limited partner and general partner in getting paid my distribution? Is this distinction mentioned in the M* analysis's?

-How can you comfortably allocate a third of your money to just one sector? Aren't you afraid that Ben Graham will rise up from the grave and throttle you?

(My income portfolio model: 15% banks, 15% Oil, 15% Utilities, 15% REIT's, 20% decent yielding consumer, pharma, industrials, and telecoms, 20% MLP's)

-I think these MLP's are all reasonable choices, but did I leave anything out? I never thought of Shale for a single moment before, but now I realise that I can't live without it in my portfolio.

And thanks to all for participating. It's great to share knowlege without someone trying to sell me a variable annuity.

kittydog2:

A couple of more questions, if you don't mind:

-Can you explain the difference in risk between being a limited partner and general partner in getting paid my distribution? Is this distinction mentioned in the M* analysis's?

-How can you comfortably allocate a third of your money to just one sector? Aren't you afraid that Ben Graham will rise up from the grave and throttle you?

To make it real simple (actually it really is simple), the limited partner (LP) entities and the general partner (GP) entities typically have a deal.  The deal goes like this:

The LP entity says, "Hey, GP, run this business exceedingly well such that I get a handsome return on my investment.  If you do that, then I'll agree that you get a very high percentage of all the cash flow after I get my handsome return."

The GP entity says, "You got it!  I like incentives.  It's the American way."

It's really a leveraged situation for the GP - that's what I mean by a bit more risk.  The LPs get the first chunk of cash flow and give up some of the upside above an agreed-upon amount.  When the numbers are going up, everyone is happy and the GP's share is growing very rapidly and so are your GP distributions.  BUT, if the cash flow drops down to or below that certain amount, the GP gets whacked first while the LP maybe isn't affected at all or maybe just a tad.

One of my personal metrics is the ratio of investments in GP entities to LP entities - long term I think the GP entity total returns are going to be terrific, but I'm mindful that they would be the first to cut their distribution in a downturn.

How can you comfortably allocate a third of your money to just one sector? Aren't you afraid that Ben Graham will rise up from the grave and throttle you?

Allocating a third of the total to pipeline MLPs was primarily a diversification move for me - until I did that I had 100% invested in one company.  And since Ben Graham didn't help me make it, I didn't figure I owed him any explanation.

Regards.

Cliff