Money Buzz 12/05

Low-risk investments that yield more than a few percentage points are tough to find these days. But with master limited partnerships, or MLPs, investors can reap up to 10 percentage points over 10-year U.S. Treasuries while taking on relatively minimal risk.

MLP units essentially give investors a limited partnership in an asset--typically in the energy sector, such as shares in an oil or gas pipeline. MLP units trade on major stock exchanges, so you can invest through any brokerage account. Both the nature of the assets and the MLP partnership structure--which requires that a large portion of cash flow be distributed to investors--make them attractive, explains J.C. Frey, an MLP expert at Los Angeles-based investment advisory firm Kayne Anderson.

"These are real assets with long lives and very stable cash flows that grow consistently every year, driven by demand more than [by] commodity prices," Frey says, noting that historic MLP yields of 6 percent jumped to between 9 percent and 10 percent in 2005.

The caveat? While MLPs as a whole can offer tax deferral opportunities, they are not appropriate for retirement accounts, as earnings above $1,000 will be taxable even if held in an IRA or 401(K) account. And, as with any investment, investors must choose wisely to ensure top returns. Says Frey, "What gets us excited is a good, solid core asset with built-in growth opportunity and a management team that knows how to exploit it."