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CORRECTED-Wall St Week Ahead-MLPs poised for bounce, but could be short-lived

From Reuters - November 11, 2017

NEW YORK (Reuters) - Master limited partnerships (MLPs) have been beaten down in 2017, but conditions may be turning in their favor for a short-term bounce by year-end.

An MLP is a limited partnership that is publicly traded and, as such, enjoys the benefits of paying no tax at the company level as well as the liquidity that comes with being traded on a major stock exchange.

They generally deal in the production, processing, storage and transport of commodities such as oil and natural gas, which makes them sensitive to fluctuations in the price of the underlying commodity. A high dividend yield also makes them attractive in low interest rate environments.

But there has been a dislocation this year, as WTI CLcv1 and Brent LCOcv1 crude oil have climbed about 20 percent since the end of August yet MLPs have yet to follow suit.

If you told me what oil did, interest rates did, credit spreads, all of these things so far this year, I would say MLPs should be up 10 percent this year, said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

Oil prices going above $55 a barrel, interest rates remaining pretty low, U.S. oil production seems to be pretty strong - if you take those factors and triangulate then MLPs should be a lot higher.

A recent Reuters poll showed oil will likely rally into 2018 with periods of volatility as an anticipated extension of OPEC-led output restrictions offsets higher U.S. production. [nL8N1N54UR]

The Alerian MLP Index .AMZ is down more than 4 percent since Aug. 31 and nearly 15 percent for the year despite the climb in oil prices. That lags well behind the gain of more than 4 percent in the broad S&P 500 .SPX since Aug. 31 and 15 percent gain for the year.

That decline has made MLPs cheap and coupled with their high dividend yields in a low interest rate environment, should make them attractive to investors.

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