Now we separate the Pros from the Pretenders

Today’s MLP of the Day – Energy Transfer Partners LP, ticker symbol ETE. In a tersely-worded 8K, the company announced the replacement of their CFO. I don’t know anything about the company, but the investors in the name are clearly shooting first here and getting the hell out of dodge. Shareholders in this and many other MLPS are now learning an abject lesson in portfolio construction and the true nature of risk-reward tradeoffs in fixed income.

ete

For a 4.5% income stream in ETE during the salad days of MLPs, investors endured almost complete wipeout of their principal.

We’re seeing portfolios come in to us lately loaded with securities that carried high yields at the time of purchase, but that also carried extreme risk – a foreign concept during the QE years when anything could be financed and refinanced at will.

The pros knew not to construct income portfolios laden with “bond alternatives” or, at a minimum, to keep these holdings small and compartmentalized. The pretenders replaced the Treasury slots of their fixed income holdings with garbage so they could promise clients (and prospective clients) a current income higher than what the guy down the street was offering.

And now we separate the pros from the pretenders, as the potential risks become actual risks, and, in many cases, permanent losses.

If you’re an advisor who won business over the last few years by out-delivering on current yield in your proposals, your time of reckoning has come. Because all fixed income must be looked at from a total return perspective, not merely quoted in terms of the trailing 12-month’s dividend yield.

Read this if you haven’t yet:

The MLP Myth Blown to Smithereens (TRB)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. replica rolex commented on Dec 17

    … [Trackback]

    […] Find More here on that Topic: thereformedbroker.com/2016/02/08/now-we-separate-the-pros-from-the-pretenders/ […]

  2. cbd for anxiety commented on Jan 02

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2016/02/08/now-we-separate-the-pros-from-the-pretenders/ […]

  3. what are tangerine logins commented on Jan 16

    … [Trackback]

    […] Here you will find 93354 more Info on that Topic: thereformedbroker.com/2016/02/08/now-we-separate-the-pros-from-the-pretenders/ […]

  4. Buy Steroids Online commented on Jan 18

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2016/02/08/now-we-separate-the-pros-from-the-pretenders/ […]

  5. Carpetcleaningconway commented on Feb 02

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2016/02/08/now-we-separate-the-pros-from-the-pretenders/ […]