[Herald Interview] ‘Trump, rising oil will boost MLP funds’

By Korea Herald
  • Published : Feb 14, 2017 - 14:15
  • Updated : Feb 14, 2017 - 14:15
The Donald Trump administration’s massive support to build energy infrastructure in the US and a recovery of global oil prices will boost the performance of MLP funds for the next several years, a chief investment officer of a US asset management firm has said.

MLP funds are those investing in US companies called master limited partnerships, which operate energy pipe lines and transportation and storage firms for shale gas and oil. In Korea, there are two MLP funds operated by Korea Investment Management and Hanwha Asset Management.

John Musgrave, co-CIO and portfolio manager at Cushing Asset Management, who briefly visited Seoul to promote Korea Investment Management MLP Fund to private bankers and investors here, said MLPs could achieve 10-15 percent return targets.

John Musgrave, co-CIO and portfolio manager at Cushing Asset Management. (Cushing Asset Management)

The KIM MLP Fund, launched on March 4, 2014, has suffered a 7.43 percent loss in cumulative return and a 2.62 percent loss in annualized return, as of Jan. 31, mainly due to falling crude oil prices that hit shale gas and oil developers hard.

“The KIM MLP Fund’s performance is negative from its inception but has significantly outperformed the price of oil, which is down 49 percent during the same period. We are optimistic on its prospects going forward with crude oil above $50 per barrel and the demand for US hydrocarbons growing,” Musgrave said in an email interview with The Korea Herald.

“We do expect the fund to turn positive as the potential for current yield growth and price appreciation, driven by increased company distributions, to increase the fund’s value.”

He noted that Trump’s backing multi-billion-dollar pipeline projects, support for US export of liquefied natural gas and oil, as well as his appointments of the Cabinet with energy industry-related executives will be opportunities for Korean builders and financial institutions.

He took an example of SK E&C’s partnering with US-based KBR to build a liquefied natural gas plant in Louisiana for Magnolia LNG.

According to a Cushing’s report, about $640 billion worth energy infrastructure still needs to be built in the US.

“There are also discussions for more LNG plants similar to Magnolia’s size, so that could represent additional opportunities for South Korean companies,” he said.

The Federal Reserve’s expected move to raise interest rates this year is also a favorable factor for MLPs, said Musgrave, citing past experiences.

When the Fed’s funds rate rose from 1 percent in January 2004 to over 5 percent in January 2007, the Alerian MLP index, the leading gauge of MLPs, also went up from 2 percent to about mid 3 percent range during the same period, according to industry data.

By Kim Yoon-mi (