Falling Interest Rates Impacting Yield? Midstream/MLPs Can Help

Core Insights - The recent rate cut by the Federal Reserve may lead to lower yields on bonds, prompting investors to seek alternative income sources [1][2] - Midstream Master Limited Partnerships (MLPs) and corporations are highlighted as attractive options due to their higher yields compared to traditional fixed income benchmarks [1][3] Rate Cuts and Impact on Bonds - The Federal Reserve has reduced rates by 25 basis points and may consider further cuts, which could negatively affect income-focused investors, particularly those nearing retirement [2] Midstream MLPs and Yields - Midstream MLPs and C-Corps provide appealing income and diversification benefits, with the Alerian MLP Infrastructure Index (AMZI) offering a 7.8% indicative yield as of September 23, compared to a ten-year average yield of 8.2% [3][4] - AMZI's yield surpasses the Bloomberg USAgg Index's yield of 4.3% and the Bloomberg US Corporate High Yield Index's yield of 6.6% [4] Diversification and Correlation - MLPs can enhance income portfolios while offering diversification, as evidenced by AMZI's low ten-year correlation of 0.1 with the Agg [4] - The Alerian Midstream Energy Select Index (AMEI) provides a 5.3% yield, with a ten-year average yield of 6.1%, consisting of approximately 75% U.S. and Canadian midstream corporations and 25% MLPs [4] Comparison with Other Income Investments - Both AMZI and AMEI yield more than other equity income investments, such as REITs at 4.0% and the S&P 500 Utilities Index at 2.8% [5] - MLPs or midstream investments typically represent a 3-5% allocation in an income portfolio, which can significantly enhance overall portfolio yields [5]