Master Limited Partnerships: An option for investment diversification

Diversification is an important part of a sound investment strategy. Yet achieving true diversification requires investment vehicles that have low correlation to one another—in other words, they don’t react in a similar manner to market developments. During periods of significant economic growth, typical investments tend to demonstrate significant correlation, even across dissimilar industries. Investments that are minimally correlated with the market as a whole are challenging to find. This, plus a history of strong returns, may explain a growing interest in investments known as master limited partnerships (MLPs). In this article, we will provide an overview of what MLPs are, their potential benefits, risks and tax treatment, and the vehicles available for investing in them.