Investing in MLPs vs. Infrastructure Companies

Here’s an interesting post comparing investing in master limited partnerships to investing in infrastructure companies, including MLPs. It makes a number of good points and focuses on comparing two ETFs that initially appear to be similar but have very different holdings and performance over the last few years. It concludes that MLPs largely have morphed into something different than they used to be and what many investors thought they were buying.

One of the lessons of the past year or so is that the MLP sector, which started life as a largely utility-like asset class, didn’t escape the hype of the shale boom. The MLP financing structure was transferred from boring old interstate pipelines to riskier things like refineries and gathering systems, and a ton of debt was taken on, as the investment pitch changed from reliable payouts to fast-growing payouts.

Many investors, dazzled by the combination of yield, growth and apparently “toll-road” like assets, didn’t necessarily read the fine print.