MLPA: Energy Transport Stocks Losing Steam (NYSEARCA:MLPA)

Investors continue to flock to the energy patch for momentum. The sector, while less than 5% of the S&P 500, is up huge in 2022 while most others are sharply in the red. Certainly, high oil prices and surging natural gas futures put upside pressure on virtually all energy companies – from integrateds to refiners to midstream/transport firms. One ETF offers domestic exposure to the oil and gas pipeline and transportation niche.

The Global X MLP ETF (NYSEARCA:MLPA) is a way to invest in midstream pipelines and storage facilities that have less sensitivity to energy prices, according to Global X ETFs. MLP companies typically pay out massive dividends since those companies do not pay corporate income taxes, says Global X ETFs. Structured as a C-corporation, MLPA holds 20-30 stocks in the midstream/pipeline energy industry.

Digging Into MLPA

The ETF is cap-weighted and since taxes are at the fund level, its distributions are generally tax-deferred, according to ETF.com. With quarterly rebalancing, investors receive diversified exposure to the quickly shifting energy storage and processing group. The fund’s expense ratio is 0.46% with a bid/ask spread near 0.12%, on average, both metrics are relatively attractive.

The ETF Is Concentrated With 30% In The Top 3 Holdings

By industry, MLPA is diversified across three primary industries. The portfolio features a P/E ratio of 11.8x, well below that of the S&P 500. The beta, however, is elevated at 1.7 vs the broad market, according to the ETF’s website.

Diversified Industry Exposure

Performance-wise, MLPA is up nearly 20% this year, but that is less than many other energy-related ETFs.

MLPA Up Almost 20%, Underperforming Most Energy Industry ETFs

Good Profit Numbers, Weak Stock Price Moves

A disappointing recent trend was poor stock price reactions during the most recent earnings season. While the sector had massive EPS growth from a year ago, midstream stocks specifically struggled to post decent post-earnings share price moves, according to BofA Global Research.

Q1 Earnings Reactions: Lackluster

Good, Not Great

While the ETF offers solid exposure to the midstream energy industry and features a good valuation, the chart concerns me and ultimately makes me bearish on the space. Bulls would’ve wanted to see a better breakout above the 2021 high nearly a year ago. Instead, shares have sputtered at that high-water mark and now feature some bearish divergence between price and momentum (RSI). My take is that the ETF is at risk of a false breakdown. Still, relative performance is good vs the S&P 500.

MLPA: Sputtering Price With Bearish Divergence, Support Prices To Watch

The Bottom Line

It might be time for a pause for shares of MLPA. While the valuation looks good, the chart suggests upward pressure is cooling off. I’d wait for a breakout above $45 before initiating a position. On the downside, there should be decent support near $37 and further down at $32.