Master limited partnerships have been producing good yield in contrast to other investments that suffered big losses last week, maybe because they are less rate sensitive. But the debt involved in MLP ETFs could threaten that lucky streak,
Barrons
’ Ben Levinson wrote:
According to Ned Davis Research, the debt-to-EBITDA ratio of the Alerian MLP Index goes a long way towards explaining returns. When the median stock in the index trades above 2.6 debt-to-EBITDA, MLPs have lost 10% on average. When it’s been below 2.6, they’ve gained 20%. The current debt-to-EBITDA ratio is 3.0.
The most leveraged MLPs returned 6.76 percent as compared to 14 percent of the least leveraged. Two MLP ETFs that fell yesterday were ALPs Algerian ML ETF, which fell 1.8 percent and Yorkville High Income MLP ETF which fell 1.6 percent.
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Edited by:
Casey Quinlan
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