Morningstar MLP Composite Index
®
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Bloomberg Tickers
MLP Composite Index—MSDILPCP
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Master Limited Partnerships 101
Morningstar’s Approach to Indexing MLPs
Energy master limited partnerships, or MLPs, engage
in the transportation, treating, processing, refining,
storage, marketing, exploration, and production of natural resources. The MLP structure was created by
the U.S. Congress in 1986 to encourage investment in
natural resources businesses, which are capital
intensive. The business models and asset quality allow
MLPs to consistently invest in projects that generate
returns in excess of their cost of capital. Their assets,
particularly pipelines but also gathering systems,
storage assets, and processing facilities, tend to enjoy
partial structural monopolies which allow operators
to earn above-average returns on capital. In many cases,
such as long-haul pipeline transportation, MLPs
enjoy regulated rates of return that are generally more
favorable than regulated utilities. Additionally, MLPs
do not pay a corporate income tax. The past decade has
seen the number and market capitalization of
MLPs soar as more and more quality assets migrated
from legacy energy companies to more efficient,
higher returning MLPs.
Morningstar has developed an index that offers a transparent and efficient way to gain exposure to MLPs.
The Morningstar® MLP Composite Index is a diversified,
dividend-dollar weighted index that targets the
top 97% of publicly trading energy MLPs by market
capitalization. which are capital intensive businesses.
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The Morningstar® MLP Composite Index leverages our
equity research by using an available dividend
model that emphasizes partnership size as well as
distributions. Morningstar defines available dividends as:
Distributions Per Unit × Units Outstanding × Float
Factor. Figure 1 outlines the Morningstar MLP Composite
Index construction process.
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Figure 1. Morningstar MLP Indexes Construction Process
Morningstar
U.S. Market Index
Total U.S. MLP Universe
Begin with 97% of the U.S.
Equity Universe
Select MLPs listed on NYSE, NYSE
AMEX, and NASDAQ
Morningstar MLP
Composite Index
®
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©2015 Morningstar, Inc. All rights reserved. Morningstar and the Morningstar logo are either trademarks or service marks of Morningstar, Inc.
Target the top 97% of publicly-trading
energy MLPs by market cap
Morningstar® MLP Composite Index
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Figure 2. Risk/Return Metrics
Annualized Trailing Returns %
Risk
1-Year
3-Year
5-Year
12-Month
Yield
%
Morningstar MLP Composite Index
–6.39
13.26
15.49
–0.47
16.66
0.95
–43.08
U.S. Equities
11.94
19.84
16.68
0.22
15.52
0.29
–50.76
Global ex-U.S. Equities
–0.05
13.35
8.92
–0.98
17.71
0.27
–57.24
U.S. Fixed-Income
12.69
21.13
17.47
0.21
14.64
0.41
–48.59
–29.41
–7.31
–0.90
N/A
18.19
0.25
–53.78
Name
®
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Long-Only Commodities
Standard
Deviation
%
Sharpe
Ratio
Max
Drawdown
%
Source: Morningstar, All asset classes above represented by Morningstar Indexes
Data from 07/01/2000–05/31/2015
Why Invest in MLPs
MLPs can provide investors with a reliable source of
income, portfolio diversification, and an attractive risk
and return profile.
3 Reliable source of income: The business models of
MLPs allow for the generation of predictable cash flows
and payout of consistent and growing distributions.
3 Portfolio diversification: MLPs can provide diversification
to a portfolio, as they exhibit low correlations with other
asset classes.
3 Attractive risk and return: As shown in Figure 2,
Morningstar MLP Indexes offer an attractive risk and
return profile compared with other indexes.
Rebalancing and Reconstitution
The Morningstar® MLP Composite IndexSM is
reconstituted twice annually, in June and December.
The index is rebalanced four times annually on
the Monday following the third Friday of March, June,
September and December.
Figure 3. Correlation of MLPs to Other Asset Classes
Index
1
2
3
4
5
1.Morningstar Composite Index
1.00
2. U.S. Equities
0.42
1.00
3. Global ex-U.S. Equities
0.46
0.87
1.00
4. U.S. Fixed-Income
0.41
0.97
0.86
1.00
5. Long-Only Commodities
0.36
0.36
0.53
0.34
1.00 to 0.61
0.60 to 0.21
0.20 to –0.20
–0.21 to –0.60
–0.61 to –1.00
Extreme
Positive
Positive
Moderate
Negative
Extreme
Negative
®
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Source: Morningstar, All asset classes above represented by Morningstar Indexes
Data from 07/01/2000–05/31/2015
©2015 Morningstar, Inc. All rights reserved. Morningstar and the Morningstar logo are either trademarks or service marks of Morningstar, Inc.
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