Triangles background

Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Viewed 2819 times

Indexation Vexation: Electing a New Benchmark

Given the relative calm for midstream transactions, it’s a good week to talk midstream benchmarking.  As discussed at length here and in more formal whitepapers, MLPs aren’t as dominant in the midstream business as they once were.  Tracking performance of the midstream sector, therefore, is no longer as easy as tracking the Alerian MLP Index.  A new benchmark is needed.

A few months ago, we added the Alerian Midstream Energy Index (AMNA) to our weekly dashboard and use it as a reference for midstream as a whole, alongside the original Alerian MLP Index (AMZ).  More MLP asset managers, we believe the conversation around the appropriate benchmark will accelerate this year, given the disparity in returns among MLPs and corporations.  We have thoughts on how those discussions should go, and we put those thoughts into a whitepaper we published this week.


The one sentence summary of the paper is that we believe a broader benchmark that is wholly agnostic to structure is most appropriate and we make the argument that AMNA most closely matches the midstream universe as we see it.

We recognize there are other index providers besides Alerian, but their history, accessible data, range of indexes, relative independence and general cache among investors make their indexes stand out.

We considered other indexes as well, reviewed them and eliminated them for various reasons below.  No hard feelings to those companies behind the indexes or the products tracking them.

  • Alerian MLP Infrastructure Index (AMZI)
    • Fatal flaw: concentrated, just 25 holdings, all MLPs
  • American Energy Independence Index
    • Fatal flaw: bias against non-GP MLPs (5% cap), limited historical data, limited relevance/cache, small number of constituents (28)
    • Methodology was changed in 3Q 2018 to reflect the simplification trend, now 20% of the index is MLPs
  • CIBC Atlas Select MLP Index
    • Fatal flaw: bias against non-MLPs (25% cap), small number of constituents (27)
  • Solactive MLP Infrastructure Index
    • Fatal flaw(s): just 20 names, less than $300bn market cap covered