TORIX – Q3 2017 Commentary
The Tortoise MLP & Pipeline Fund had positive returns during the third quarter and has outpaced its ETF counterpart (VNQ) year to date. However, the asset class has experienced a sell off, driven mostly by oil prices in the first half of the year.
Despite stabilized crude oil prices during the third quarter (and through October), company specific issues have negatively affected the sentiment of the broader index. Much of the selloff came as a result of Enterprise Product Partners announcing it will slow down its projected distribution growth rate. It is important to note that they are not cutting the distribution but rather slowing the growth.
Their reasoning is that the market is not rewarding the high growth rate (approximately at 6.5%), and they will look to use cash as a way to fund new projects. Normally, MLPs will fund internal investment by issuing equity (or new MLP units). Equity capital markets have been relatively difficult for larger deals in the MLP space this year.
Tortoise believes it is possible that other MLPs may reassess distribution policies in order to best balance shareholder return through payouts and company growth. The Tortoise team remains confident that the fundamentals within the MLP space are strong and believes that the long term outlook for midstream companies is positive.