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Zak Brown UBS Private Wealth Management Current Opportunities in MLPs The Errico Group June 2012.

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Presentation on theme: "Zak Brown UBS Private Wealth Management Current Opportunities in MLPs The Errico Group June 2012."— Presentation transcript:

1 Zak Brown UBS Private Wealth Management Current Opportunities in MLPs The Errico Group June 2012

2 Current Opportunities in MLPs What's occurred? Master Limited Partnerships currently offer a unique buying opportunity given their mean reversion behavior to various other yield products – namely Treasuries and Baa bonds. Spreads today have widened dramatically in response to risk aversion that is concerned with both credit markets and commodity prices. MLPs are yielding a premium not seen since the credit crisis in 2008 despite a much healthier environment. What's Different versus 2008? MLPs have deleveraged and successfully refinanced the cost of capital Credit markets are functioning Current issues are political in nature and not questions of corporate solvency Distribution growth is healthy regardless of commodity weakness & cyclical slowdowns 1

3 12 Month Forward Returns when Breeching 400bp over Treasuries: September 9 th, Beginning of Lehman Collapse AMZ Index 5.74% SPX Index-13.30% MSCI World- 9.69% May 25 th, 2010…Beginning of Greek Default AMZ Index38.93% SPX Index25.42% MSCI World29.30% Peak to Trough Declines: October 11 th, March 5 th, 2009 AMZ Index-37.93% SPX Index-54.56% MSCI World-56.49% Comparative Returns through Market Dislocations 2

4 3

5 MLPs Outperform in a Recession 4

6 10yr Total Return Analysis vs. S&P 500 & Ten Year Treasury 5

7 MLP Relative Value MLPs currently trade 444bp wider than 10yr Treasuries… This gap represents a significant dislocation relative to the 10yr average of 320bp… MLPs which typically trade in-line on a yield basis with Baa bonds have widened over that asset class by 102.9bp 6

8 Low Correlation to Broad Market and Fixed Income 7

9 Distribution & Long Term Performance

10 8

11 aUBS Master Limited Partnerships 9

12 Overview

13 Investment Thesis What are MLP's? Structured as a limited partnership, not a corporation Own, maintain and operate energy infrastructure in North America Issue units that are traded on public exchanges Generate high free cash flow paid out quarterly to investors Income and growth potential Approximately $285 billion market cap as of 3/1/2011 aUBS Master Limited Partnerships Why own MLP's? Unmatched total return value proposition Attractive yield Portfolio diversification A lower risk (beta) way to invest in energy Resilient business model during periods of economic weakness Asset class is under-owned by institutions Structure -An MLP is a publically traded partnership with assets, growth characteristics and risk tolerance levels that are different from traditional corporations. The units or shares are registered with the U.S. Securities and Exchange Commission and trade on a major exchange, generally the New York Stock Exchange. An MLP consists of a General Partner and Limited Partners. Such an entity can qualify as an MLP as long as 90% of its income is qualified as being derived from the transportation, storage, or processing of "natural resource" products. Taxation - The major difference between an MLP and a traditional corporation is its pass-through tax treatment, which exempts the MLP from taxes at the entity level and allows it to pass the taxes on to the investors of the MLP. The individual investor benefits because in most instances, the distributions that are received are considered return of capital and therefore, the taxes due on that portion of income may be deferred until the MLP is sold. Valuation - Primary drivers of value are the perceived growth rate in cash distributions and the cash flow coverage of the total units outstanding. MLPs that have the best opportunity to internally grow or acquire assets have historically been rewarded higher per share valuations than those MLPs whose growth is perceived as limited. Growth in assets usually translates into growth in an MLP's cash flow and consequently, growth in its ability to increase distributions. Function -As a yield instrument, MLPs have often been compared to bonds and regarded as an attractive investment option for investors seeking steady income. More recently, many MLPs have evolved into growth-oriented investments with the sponsor or General Partner using acquisitions to drive growth. MLP Description 10

14 Disclaimer It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us. As a firm providing wealth management services to clients, we are registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Though there are similarities among these services, the investment advisory programs and brokerage accounts we offer are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. While we strive to ensure the nature of our services is clear in the materials we publish, if at any time you seek clarification on the nature of your accounts or the services you receive, please speak with your Private Wealth Advisor. For more information, please visit our website at Wealth management services in the United States are provided by UBS Financial Services Inc., a registered broker-dealer offering securities, trading, brokerage and related products and services. Neither UBS Financial Services Inc., nor its employees (including its Financial Advisors), provide tax or legal advice. You should consult with your attorney and tax advisor regarding your personal circumstances. It is your responsibility to determine if, and how, the suggestions made in connection with the planning services should be implemented or otherwise followed. You should carefully consider all relevant factors in making your decisions and we encourage you to consult with your outside professional advisers. In particular, you should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular recommendation, strategy or investment, including any estate planning strategies, before you invest or implement. The strategies discussed in this presentation are some of the most commonly known or used wealth transfer strategies, not an in-depth discussion of all strategies that may be appropriate to your needs. This summary is for informational purposes only and should not be used as the basis of an investment decision. UBS Financial Services Inc. does not provide legal or tax advice. UBS Financial Services Inc. expressly disclaims responsibility for any use of these materials other than in accordance with this statement of purpose. UBS Financial Services Inc., its affiliates and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayers particular circumstances from an independent tax advisor. © 2010 UBS Financial Services Inc. All rights reserved. Member SIPC. UBS Financial Services Inc. is a subsidiary of UBS AG.

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