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sick of being in cash in taxable account
Old 09-09-2010, 03:26 PM   #1
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sick of being in cash in taxable account

Hi folks, been a while,

I am sitting on a decent amount of cash (about 30%) of total portfolio all MM and came across MTP..

Utilties and Oil Pipeline Master Limited Partnerships: Where to Invest in a Low Interest Rate Environment - DailyFinance

MLP & Strategic Equity Fund, MTP Fund Quote - (NASDAQ) MTP, MLP & Strategic Equity Fund Fund Price

Anyone involved in theses and have an opinion. These are better in a taxable account because you can actually write of the depreciation of the companies..

Seems kind of intriguing but they did get killed in stock price back in 2008..

Any thoughts are appreciated.

Wally
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Old 09-09-2010, 03:43 PM   #2
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Personally, MLPs are one of the few asset classes I think are unreasonably bid up. The many people chasing yield have been buying MLPs and prices have climbed quite a lot. Unless you are a dedicated and skilled stock picker who can choose the true gems in the MLP world, better to fish in other ponds.

There are lots of stable, blue chip stocks with secure dividends trading quite cheaply. There are lots of natural gas e&p companies trading under $2 an MCF in proven reserves. And so on. Buy the really cheap stuff nobody wants, not the stuff everyone has been chasing.
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Old 09-09-2010, 03:47 PM   #3
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MLPs are also a tax pain when held in a taxable account. Although I just read about an EFT or mutual fund (I think it is new) that holds MLPs. The distributions from the fund will take on the tax characteristics of the fund, not the underlying MLP. I guess that would negate my point.
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Old 09-09-2010, 05:51 PM   #4
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Personally, MLPs are one of the few asset classes I think are unreasonably bid up.
Add REITs to this, and I agree. I do own 2 MLPs that although they will suffer under certain circumstances, they are very conservatively financed and through thick and thin, up and down, they have continued to churn out rising earnings and distributions. As Brewer says though, many MLPs are sponsored by very promotional entities and are best avoided.

I expect I will hold, although I do likely have more invested in them than I would like. Selling partial positions creates some tax hassles that I likely I would have to spend money with a CPA to deal with. I also own C-corp pipeline stocks. They are not exactly cheap anymore either.

What bargains as exist in the oil and gas universe are as Brewer says, some E&Ps, and some drillers and service companies.

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Old 09-09-2010, 06:30 PM   #5
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Why not try to buy something that is reasonably tax efficient? You can do tax-loss harvesting easily in a taxable account as well.

You can buy MLPs, REITs, or bonds in your tax-advantaged accounts.
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Old 09-09-2010, 06:49 PM   #6
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Why not try to buy something that is reasonably tax efficient? You can do tax-loss harvesting easily in a taxable account as well.

You can buy MLPs<>in your tax-advantaged accounts.
If so, you throw away the tax advantages of MLPs. You also assume a risk of running afoul of UBTI regulations.

Ha
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Old 09-10-2010, 05:02 AM   #7
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Let me try to answer the OP question in a bit more straightforward manner.

Yes, MLP are decent option for investor looking for higher yield investments. The taxes situation is somewhat of pain in the butt. However, Turbotax handle them pretty straightforward fashion and so once you've gotten over the initial what the hell do I do phase, subsequent years only require an additional hour or two year for the 6-8 I typically own.

You don't exactly get the depreciation expense but the taxes on most of the distributions (similar but not the same as dividends) get deferred until you sell the units. It is difficult for mutual funds to own MLPs, which is why the funds like MTP are close end funds rather than traditional mutual funds like the Vanguard S&P 500 index fund.

The price of most MLPs tends to be pretty stable and in fact I sort of think of them as being a hybrid between stocks and bonds. They are less volatile than most stocks, since the revenues are pretty predictable. However they are impacted by changes in the energy sector and also interest rates. I'd guess if interest rates raise dramatically the prices of most MLPs will fall. On the other hand they should do reasonably well in inflationary environment since much of their revenue has inflation protection. They are also subject to company risk and at least one I owned eliminated its distribution. On the other hand my best performer SPH, was just coming off a distribution cut when I purchased it and has done spectacularly since with the stock doubling and the dividend up 40%.

All of that said as a group these were much better bargains a year ago and certainly back in 2008. Morningstar has 2-3 star rating on most of them meaning they are fairly or overvalued. One of the things that concerns me the most is lately I've several non-sophisticated investor ask about MLPs which is always a bit of concern for me.

If you more questions feel free to ask.
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Old 09-10-2010, 06:25 AM   #8
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Thanks

Hi Folks,

Great quick responses from all. You saved me a lot of time by pointing me in the right direction to do some research and pointing out some of the downside. Thanks,

Wally
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Old 09-10-2010, 10:50 AM   #9
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One of the things that concerns me the most is lately I've several non-sophisticated investor ask about MLPs which is always a bit of concern for me.

If you more questions feel free to ask.
Sure; they'll be coming right up!

ha
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