Platts 2011 MLP Symposium. October 11, 2011

Transcription

1 Platts 2011 MLP Symposium October 11, 2011

2 Disclaimer The opinions expressed in these materials represent the personal views of Salient s investment professionals and are based on their broad investment knowledge, experience, research and analysis. However, market conditions, strategic approaches, return projections and other key factors upon which the views presented in these materials are based remain subject to fluctuation and change. Consequently, it must be noted that no one can accurately predict the future of the market with certainty or guarantee future investment performance. This presentation contains "forward-looking statements." Forward-looking statements can be identified by the words "may," "will," "intend," "expect," "estimate," "continue," "plan, "anticipate," "could," "should" and similar terms and the negative of such terms. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect actual results are the performance of the portfolio of securities, the conditions in the U.S. and international financial, natural gas, petroleum and other markets and other factors. Actual results could differ materially from those projected or assumed in our forward-looking statements. This presentation does not constitute an offering of any security, product, service or fund. No investment strategy can guarantee performance results. Past performance is no guarantee of future results. All investments are subject to investment risks, including loss of principal invested. This presentation is provided without regards to the specific investment objectives, financial situation or particular needs of any specific recipient and does not contain investment recommendations. This publication is also designed to provide general information about economics, asset classes and strategies. All sector and asset allocation recommendations must be considered in the context of an individual investor s goals, time horizon and risk tolerance. Not all asset classes and strategies will be suitable for all investors. Salient Partners, LP provides wealth management and fiduciary series through various affiliates, including but not limited to Salient Trust Co. LTA, a Texas chartered limited trust association, and Salient Capital Advisors, LLC, a Securities and Exchange Commission registered investment advisor. Salient Partners, LP and affiliates do not provide tax or legal advice. Please contact your legal and or tax professional to determine how the information contained in this publication may apply to your situation. 2

3 The World We Live In Most equity indices reached their 2011 peak at the end of April Many markets have corrected 20%+ and are in the bear market zone Europe is front and center, putting pressure on credit spreads and equity valuations U.S. economic data appears to be weakening Renewed fears of a hard landing in China Dollar strengthening, commodities weakening Source: Bloomberg, October

4 We are Positive on MLPs, but Cautious in General Current AMZ yield is ~6.8% 1, potential growth in the 5% range Low interest rate environment and wide spreads to 10-Year Treasury and Moody s Baa bonds What is the appropriate spread with the 10-Year Treasury at or below 2%? Low cost of capital, with debt portion getting even cheaper for investment grade MLPs Fundamentals sound for the most part 1 Source: Alerian Capital Management, as of 10/10/11. 4

5 MLPs May Provide Attractive Yields in a Low Yield World Economic uncertainty and a low interest rate environment have caused an increased interest in yield-oriented securities, and MLPs may compare favorably. 8.0% 7.0% 6.8% 6.0% Current Yield (%) 5.0% 4.0% 3.0% 2.0% 4.2% 4.1% 2.2% 2.1% 1.0% 0.0% Alerian MLP Index S&P Utilities Index MSCI REIT Index S&P 500 U.S. 10-Year Treasury Source: Bloomberg, FactSet. October

6 Yield Spread AMZ to US 10 Year Treasury Since 1996 During the correction, MLP yield spreads moved outside the one standard deviation range. The current spread to Treasuries is 472 bps vs. 310 bps average from 1996 to present, and 278 bps average from % 13.0% 12.0% Average Spread = 3.10% Standard Deviation = 1.45% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1/2/1996 7/2/1996 1/2/1997 7/2/1997 1/2/1998 7/2/1998 1/2/1999 7/2/1999 1/2/2000 7/2/2000 1/2/2001 7/2/2001 1/2/2002 7/2/2002 1/2/2003 7/2/2003 1/2/2004 7/2/2004 1/2/2005 7/2/2005 1/2/2006 7/2/2006 1/2/2007 7/2/2007 1/2/2008 7/2/2008 1/2/2009 7/2/2009 1/2/2010 7/2/2010 1/2/2011 7/2/2011 Alerian Yield Spread Average Yield Source: Salient Capital Advisors, LLC, Factset, Bloomberg, as of 10/10/2011. An investor cannot invest directly in these indices. Past performance is no guarantee of future results. For illustrative purposes only. 6

7 Yield Spreads and Forward 12 Month AMZ Index Return When the yield spread between the AMZ and the 10 Year Treasury is greater than 4%, the return for MLPs over the next 12 months has historically been high % 88.8% 9.00% 66.6% 7.00% 44.4% 5.00% 22.2% 3.00% -0.1% 1.00% -22.3% -1.00% 01/03/96 06/03/96 11/03/96 04/03/97 09/03/97 02/03/98 07/03/98 12/03/98 05/03/99 10/03/99 03/03/00 08/03/00 01/03/01 06/03/01 11/03/01 04/03/02 09/03/02 02/03/03 07/03/03 12/03/03 05/03/04 10/03/04 03/03/05 08/03/05 01/03/06 06/03/06 11/03/06 04/03/07 09/03/07 02/03/08 07/03/08 12/03/08 05/03/09 10/03/09 03/03/10 08/03/10 01/03/11 06/03/ % NTM Return Yield Spread Source: Salient Capital Advisors, LLC, Factset, Bloomberg, 10/10/2011. An investor cannot invest directly in the index. Past performance is no guarantee of future results. For illustrative purposes only. 7

8 Yield Spreads AMZ Index to Moody s Baa Since 1996 During the correction, the yield spread to investment grade bonds moved outside the one standard deviation range. The current spread over Moody s Baa is 148 bps vs. long-term average of 63 bps 5.0% 4.0% Average Spread = 0.63% Standard Deviation = 0.86% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 1/2/1996 7/2/1996 1/2/1997 7/2/1997 1/2/1998 7/2/1998 1/2/1999 7/2/1999 1/2/2000 7/2/2000 1/2/2001 7/2/2001 1/2/2002 7/2/2002 1/2/2003 7/2/2003 1/2/2004 7/2/2004 1/2/2005 7/2/2005 1/2/2006 7/2/2006 1/2/2007 7/2/2007 1/2/2008 7/2/2008 1/2/2009 7/2/2009 1/2/2010 7/2/2010 1/2/2011 7/2/2011 AMZ - Moody's Baa Yield Spread Average Source: Salient Capital Advisors, LLC, Factset, Bloomberg, as of 10/10/2011. An investor cannot invest directly in the index. Past performance is no guarantee of future results. For illustrative purposes only. 8

9 Range of Returns Next 12 Months The table below shows potential total returns for the AMZ over the next 12 months under various yield and distribution growth scenarios. The index yield was approximately 6.8% as of 10/10/2011. MLP Total Returns at Different Growth and Yield Scenarios Expected Alerian MLP Index Yield in 12 Months 2012 Distribution Growth 5.50% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25% 7.50% 7.75% 8.00% 0.0% 30.2% 24.9% 20.0% 15.4% 11.3% 7.4% 3.8% 0.4% -2.7% -5.6% -8.3% 1.0% 31.5% 26.1% 21.1% 16.6% 12.3% 8.4% 4.8% 1.4% -1.7% -4.7% -7.5% 2.0% 32.8% 27.3% 22.3% 17.7% 13.4% 9.5% 5.8% 2.4% -0.8% -3.8% -6.6% 3.0% 34.1% 28.5% 23.5% 18.8% 14.5% 10.5% 6.8% 3.4% 0.1% -2.9% -5.7% 4.0% 35.3% 29.7% 24.6% 19.9% 15.6% 11.5% 7.8% 4.3% 1.1% -2.0% -4.8% 5.0% 36.6% 31.0% 25.8% 21.0% 16.6% 12.6% 8.8% 5.3% 2.0% -1.0% -3.9% 6.0% 37.9% 32.2% 27.0% 22.2% 17.7% 13.6% 9.8% 6.3% 3.0% -0.1% -3.0% 7.0% 39.1% 33.4% 28.1% 23.3% 18.8% 14.7% 10.8% 7.2% 3.9% 0.8% -2.2% 8.0% 40.4% 34.6% 29.3% 24.4% 19.9% 15.7% 11.8% 8.2% 4.8% 1.7% -1.3% 9.0% 41.7% 35.8% 30.4% 25.5% 21.0% 16.7% 12.8% 9.2% 5.8% 2.6% -0.4% 10.0% 42.9% 37.0% 31.6% 26.6% 22.0% 17.8% 13.8% 10.2% 6.7% 3.5% 0.5% The hypothetical returns are based on the 10/10/2011 yield of 6.8%. No methodology can guarantee performance results. 9

10 Will 2012 Be a Stock Picker s Market? Year-to-date, there has been a wide range of returns Returns within sub-sectors are divergent as well % 2011 YTD Price Movements as of 9/30/ % 60.00% 40.00% 20.00% 0.00% % % % EVEP XTXI UAN DEP AHD APL OKS WPZ GMLP TLLP XTEX WES OILT TRGP EROC DPM MMP MWE EPB SXL CEP ARLP KMP QRE NGLS HEP EPD LINE KGS PAA AMZ BPL CHKM KMR SGU GEL AHGP TLP EEQ LGCY APU ETE TOO CPNO EEP VNR BBEP KMI SEP NSH TCLP ENP SPH PVR MMLP BWP RGNC TGP EXLP SGLP PSE CLMT ETP FGP NRP NS NMM CPLP PNG GLP NRGY OXF NKA Source: FactSet, 9/30/2011 Past performance is no guarantee of future results. For illustrative purposes only. 10

11 Correlations are High Implied correlations are at historical highs The first move will likely be highly correlated, then it could become a stock picker s market 100 S&P 500 Implied Correlations (KCJ) /24/ /24/2009 1/24/2010 2/24/2010 3/24/2010 4/24/2010 5/24/2010 6/24/2010 7/24/2010 8/24/2010 9/24/ /24/ /24/ /24/2010 1/24/2011 2/24/2011 3/24/2011 4/24/2011 5/24/2011 6/24/2011 7/24/2011 8/24/2011 9/24/2011 Source: Bloomberg, 9/30/2011 KCJ is an index that calculates implied correlations between the components of the S&P

12 Potential Outcomes Among MLPs Depends on European situation and the U.S. economic environment If both weaken, larger caps may outperform If both improve, smaller caps may outperform Fundamentally strong Crude marketing & logistics assets that exploit wide differentials NGL exposure Questionable fundamentals Propane Natural gas storage 12