Disclaimer: Dan owns DEP in the Covestor MLP Direct Ownership Model
October 6, 2010: The below text is licensed to Covestor Ltd. (“Covestor”), by Dan Plettner. Such text may be disseminated only by Covestor. Dan Plettner invests and receives income for securities research, including “buy-side” research. Dan licenses his own real time trading data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses Dan Plettner’s data to create the Core, Long Short Opportunistic, Tax Advantaged Income, Taxable Income, and MLP Direct Ownership models for its clients. Dan’s words should not be misconstrued as investment advice.
On a more personal note, although MLPs were only briefly touched on in reference to similar governance conflicts of interest, I truly enjoyed the Covestor webinar. My speech was never so liberated, even when communicating with Financial Advisors. I will continue to make myself available to Covestor for any follow up questions.
I continue to favor direct ownership in MLPs. Even beyond the taxation profile, I believe there are numerous MLPs in indexes inherently exposed to unbalanced risks. I believe Incentive Distribution Rights (“IDRs”) to certain MLPs general partners can represent a tremendous governance conflict of interest of long term consequence. The only way I can be certain I am taking only those risks I am comfortable with is having control of what goes into my basket.
According to Covestor’s September performance report, the top performer was Duncan Energy Partners (DEP), returning 12.47% in September. I am pleased to observe that my worst performing allocation was my 0.27% cash position. The portfolio return was 6.6%, with which I feel very comfortable given the 0.29 September beta and the daily range being well less than half that of the S&P 500 (Covestor risk report).
The possibility of changes to, or expiration of the Bush Tax Cuts may be similarly relevant to MLPs (my focus here) and municipal bonds given that these instruments often avoid traditional dividend taxes. Accordingly, I find it interesting to compare my performance here with my account licensed to the Tax Advantaged Income model. Contrasting such tax-interested strategies in September, the Municipal Focused style had a negative beta. Such is relevant and part of the context of outperformance or underperformance of various styles in any month. Of course, there are risks in every asset class.
I continue to believe in blending my styles together. As I keep saying, I use a blended approach of alternate styles in my overall strategy. Each of my accounts has a unique style, this being one. I believe in blending alternate style biases within my own discipline in effort to achieve more smoothness over the long term. I continue to lack a crystal ball.
