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A High-Powered Energy Play on the Dip

Make this MLP trade before it trades ex-dividend


Just as it was assumed that fund managers would pile in at the end of September to “window dress” portfolios, the same chatter is cropping up about the need to be long by year-end as performance pressure mounts. This is going to be a harder call as the moving target of the fiscal cliff keeps a lot of fingers on the trigger.

Because of Fed Chairman Ben Bernanke’s level of conviction about restoring the economy, the bulls should get the benefit of the doubt.

Earlier this week, Bernanke commented that the United States is dancing around a recession. He repeated that the Fed expects a highly accommodative stance of monetary policy will remain appropriate for some time after the economy strengthens, and it will be careful not to raise rates prematurely. He also predicted that inflation will remain low, and said quantitative easing will help reduce federal debt.

However, if it only makes sense to own sectors that are immune from the elimination of the Bush tax cuts — namely tax-free bonds and MLPs — while being long gold, being short the Russell 2000 and the euro, and holding a larger percentage of cash, then I might consider that dire scenario portfolio in the future, but not yet.

For now, here’s a high-powered MLP idea to get you started on that track:

Buy the UBS ETRACS 2x Leveraged Long Alerian MLP Infrastructure Index (NYSE:MLPL) this week before it trades ex-dividend on or around Oct. 12.

Established in March 2008, MLPL tracks an index that is composed of 25 energy infrastructure master limited partnerships. The index provides a benchmark for the infrastructure component of the transportation and storage of energy commodities — an emerging asset class — and it results in greater diversification than would a pure-market capitalization-weighted index.

I like picking up energy assets on this dip, and if you can take this handsome quarterly dividend in an exchange-traded note paying 10.1%, then it should prove to be a good move. Oil and gas prices are set to move higher into winter.

Bryan Perry is editor of Cash Machine, a newsletter focused on dividends and income investing.

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