Enterprise Products Partners L.P. (EPD) is a midstream mega cap every investor of any risk tolerance should own, as EPD is able to perform better than a small-cap name in a state of enhanced market volatility, says Ethan Bellamy, Senior Analyst at Robert W. Baird & Co.
“Within midstream you have mega caps like Enterprise Products (EPD), which is a fantastically well-run partnership. It’s a name that everyone of any risk tolerance can and probably should own…EPD and a small-cap name are going to perform very differently if we see enhanced volatility, so while over the long term we think that some of the best risk/reward propositions are in the small caps, tactically if we see volatility spike up, those small-cap names are going to get disproportionately hurt,” Bellamy said.
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Bellamy advises investors to be conscientious about the balance between small- and large-cap names in a portfolio, and to tune a portfolio to real risk tolerance in order to play out any market volatility.
“Those small-cap names that aren’t investment-grade, that aren’t quite as well diversified and don’t have the same amount of liquidity, are going to get hurt a lot worse in a correction. And frankly, at the bottom they’re going to produce much stronger returns for an investor diving in once we see volatility come back,” Bellamy said.
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