Recommendation: Buy Alerian MLP ETF (AMLP)

Alerian

• Alerian is an independent company that is a leader of MLP-market intelligence, providing benchmarks, data sets, and analytics that are used extensively by a wide range of stakeholders.

• The Alerian MLP ETF seeks investment results that correspond to the Alerian MLP Infrastructure index.

MLP Refresher

• MLPs are midstream transportation, storage, and processing companies of energy commodities.

• Because of the steady stream of income which is largely independent of swings in commodity prices, MLPs are able to qualify for special tax treatment, avoiding corporate taxes at the federal and state levels.

• MLPs pay regular cash distributions on the order of 5-8% of share price with healthy yearly growth rates.

• We are interested in MLPs for their steady payouts and performance in a low interest rate environment and an overhanging threat of deflation.

MLP ETF/ETN Comparison

Ticker Mkt. Cap.

Div. Yield

1yr. Std. Dev.

Beta

ETF Index Basis

AMLP 1.34B 6.45 0.02 0.80 Alerian MLP Infrastructure

AMJ 2.39B 5.41 0.03 0.94 Alerian MLP

MLPN 187.28M

5.51 0.04 0.91 Cushing 30 MLP

MLPL 76.86M 11.82 0.05 1.59 Alerian MLP Infrastructure (2x)

MLPG 14.08M 5.28 0.04 0.94 Alerian MLP Natural Gas

MLPI 176.67M

5.19 0.03 0.96 Alerian MLP Infrastructure

AMLP ETF Valuation

Risk-Free Rate (Est.)

Beta

Exp. Market Ret. (Est.)

Dividend (1yr)

Yearly Div. Growth (Est.) *

Share Price

WACC of Top 10 AMLP

4% 0.80

8.8% $0.99 2.5% $15.58 7.3%

Required Return

AMLP Value

Capital Gains Upside

WACC 7.3% $20.49 31.48%

Beta 7.8% $18.74 20.26%

* Actual weighted average 3yr dividend growth was 11% per year. Forecasts have the growth rate at approximately 5%.

Prev Close: 15.581y Target Est:

18.74

52wk Range:

13.10-16.79

Avg Vol (3m):

827,022

Market Cap:

1.34B

P/E (ttm): n/aEPS (ttm): n/aDiv & Yield: 0.99

(6.45%)Forward P/E: n/a

Investment Information

SWOT Analysis

Strengths Steady performance. High distribution yield. Low standard deviation.

Weaknesses Will trail market in bullish scenario.

Opportunities Money flows seeking yield. Smoothing out market turbulence.

Threats Capital markets freeze. Alterations in tax rules. Increase in interest rates.

Investment Thesis

• Uncertainty in the American economy and markets paired with historically low interest rates calls for a steadily-performing stock with a strong dividend yield that can be expected to attract more investors.

Sector : Energy Industry Group: Midstream Oil/Gas Current Holdings: FEN, HES, PXJ, SU Target Sector Allocation: 8.54%, $37,325 Current Sector Allocation: 7.15% , $31,234 Remaining Allocation: 1.39%, $6,091

BUY 350 shares of AMLP at Limit of $15.50 ($5,425)

BUY 100 shares of AMLP at Limit of $14.10 ($1,410; 7.1% yield)

Holding Period/Exit Strategy: 2-5 years. Sell if fundamentals change substantially (e.g. tax treatment, rate increases).

Portfolio Placement / Recommendation