Many income investors, particularly retirees, have been sold energy-related stocks in recent years based on the promise of attractive yields and steady income streams. Unfortunately, because of the recent tumult in the global energy market, many of these investors have also seen their portfolios decimated in only a few short weeks. One type of investment that has been particularly hit hard are Master Limited Partnerships, or MLPs.
On March 8, 2020, Saudi Arabia rocked oil markets by starting a price war with Russia and announcing unexpected price discounts of $6 to $8 per barrel to customers in Europe, Asia, and the US. The energy markets responded in kind, with oil prices dropping as much as 30 percent in a single day.
In the days that have followed, energy stocks, commodities, and other related investments have continued to fall substantially. Many MLPs in particular have sustained significant losses.
MLPs service the energy sector by providing pipelines, processing plants, storage, and refineries. Most MLPs earn money by charging oil-and-gas producers to transport or store their products. Brokers often sell MLPs to retirees as income-producing vehicles. The promise of attractive yields can be especially enticing to investors who are living on a fixed income. Too many brokers sell MLPs without adequately disclosing the numerous risks involved with these investments. Oftentimes, investors’ portfolios become over-concentrated in these products. When energy markets decline substantially, investors who are invested heavily in MLPs can be wiped out.
Since the beginning of this year, several commonly held MLPs have lost nearly all of their value. Genesis Energy L.P., which trades on the New York Stock Exchange, is down a stunning 83 percent year-to-date. Another well-known MLP, Chesapeake Energy Corporation, is down 79 percent. Other prominent MLPs suffering significant losses so far this year include Tortoise Energy (down 84 percent) and Kayne Anderson (down 68 percent).
Over the years, my law firm and I have successfully represented numerous investors who have been improperly sold MLPs and suffered significant losses. If you have questions or concerns about the MLPs in your investment account, please do not hesitate to contact us for a free consultation.