Introducing The Dorsey Wright MLP Index

MLP History                                                                                                   

The Master Limited Partnership (MLP) structure was created to allow certain partnerships to gain the liquidity of a publicly traded security, like a stock, while maintaining the tax benefits of a partnership.  The MLP structure provides a tax advantage to the business and to the shareholders. MLPs do not pay tax at the company level and distribute the majority of their cash flow to the unitholders.

Apache Corporation created the first MLP in the United States, Apache Petroleum Company, in 1981.  Shortly thereafter other energy MLPs were formed, followed by real estate MLPs, amusement park MLPs, and arguably the most famous MLP, the Boston Celtics. Congress put an end to the growing types of companies utilizing the MLP structure with the Revenue Act of 1987 which states an MLP must earn at least 90% of its gross income from qualifying sources, which is limited to transportation, processing, storage, and production of natural resources and minerals.

MLPs are now largely dominated by energy companies with business structures that typically can be categorized into three segments: Upstream, Midstream and Downstream.

Indexing MLPs

Energy prices are a significant risk to MLPs. Typically, midstream MLPs don’t own the oil or natural gas that is transported. Instead, the company receives payment for the transportation of the resources. While some Midstream MLPs only transport oil and gas, they can be impacted by the fluctuations in the price of oil and gas. For example, if the price of oil or gas decreases, an MLP’s price could also decrease because of the risk that the oil producer decides to reduce oil production capacity, thereby reducing the amount of oil needed for transport.

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Disclaimer: Each index has limited actual historical information. The Index Calculation Agent (as defined in the applicable pricing supplement), may adjust the index in a way that may affect its ...

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