May has historically and consistently been one the weakest months for MLPs, eight of the last 16 Mays (50%) have been negative, compared with just 38% for the index overall since 1995. May 2010 (-6.2%) and May 2011 (-5.7%) were particularly bad. Natural gas has found some support and MLP equity issuance has slowed, so MLP Index is closing in on 400 again. Expect distribution ex-dates and more equity offerings to hold MLPs down further, until a catalyst like commodity prices or positive economic data changes the current environment.
So, where do we go from here? One way to look at it is a matrix of that highlights what distribution growth rates and exit yields will do for index return in the next 12 and 24 months. With this matrix, you can see what your view of MLP yield and growth will produce in returns. It's just math. If you think MLPs will exit next year at 6.5% and grow distributions 4%, MLP Index will produce just a 3.8% total return from here. If you think MLPs will exit at its current yield plus 6% distribution growth in the next 12 months, that will result in 12.3% total return in next 12 months. You can see that the impact of exit yield changes has a more pronounced effect on total returns than distribution growth. In other words, it's not enough to just buy a high growth MLP, your return is largely dependent on buying that growth MLP at a reasonable price.