That seems to be the approach many investors are taking to pretty much everything in the income investing universe, with the exception of US Treasury paper and some highly rated bonds.

We understand this sentiment in a volatile market like this one, particularly with memories of 2008 so fresh. Our view, however, is that unless you really want to be a trader, you’re better off staying with positions in strong master limited partnerships (MLP) and collecting the rising stream of income. As 2008 proved, strong businesses can weather even the worst conditions. And as long as they do, damage in the market is swiftly repaired.

As “By the Numbers” shows, most of our Portfolio holdings are still hanging in there pretty well despite the selloff. A couple of Aggressive Holdings–mainly energy producers–are down double-digits for 2010. But a good many of the less commodity price-sensitive selections are still flat to up.

Most are considerably off the highs they reached earlier this year. But they’re a whole lot closer to the highs than to the lows of 2008, at the crest of the credit crisis and market meltdown. And they’re now well within our buy targets, which are set with expectations for growth in cash flow and distributions.

A repeat of 2008 is, of course, what’s driving the fear in this market. But it’s worth remembering that MLPs backed by strong businesses recovered their losses from that year and more in the rally that followed, even as they continued to hike distributions. That was despite the worst combination of economic, market and credit pressures in 80 years–an astounding testament to their underlying financial strength and the resilience of their business. The only real losers among MLP investors were those who cashed out in the face of the selling.

Not 2008 Yet

There are certainly causes for worry here in May 2010. The oil spill in the Gulf of Mexico continues to raise questions about the future of offshore drilling and, by extension, energy gathering, processing, refining, storage and transportation infrastructure. Credit pressures in Europe have accelerated fears of a contagion spreading throughout financial markets and the onset of a second credit freeze. Meanwhile, the Obama administration continues to tighten regulation and higher taxes are a certainly in 2011.

At least at this point, however, the risk to high-quality MLPs doesn’t come close to the level of danger in 2008. For one thing, if the oil spill is going to raise the cost of deepwater drilling, it’s going to make land-based drilling–particularly from North America’s abundant shale reserves–that much more attractive and cost competitive. And more expensive offshore output will restrict supply, making the output of all producers more valuable.

That means a lot more activity for the MLPs that are rapidly expanding their infrastructure in shale-rich areas, including Enterprise Products Partners LP (NYSE: EPD), Kinder Morgan Energy Partners LP (NYSE: KMP) and what appears to be a budding alliance between Energy Transfer Partners LP (NYSE: ETP) and Regency Energy Partners LP (NSDQ: RGNC), under a common general partner Energy Transfer Equity LP (NYSE: ETE).

More expensive offshore oil is also good news for players in the natural gas liquids (NGL) business, as NGLs are often used as substitutes for black gold. One of the best plays in this area is our own Targa Resources Partners LP (NSDQ: NGLS), which has its fingers in all areas of the business including fractionating, gathering, compressing, treating, processing and marketing.

Best of all, the projects these MLPs undertake–either by acquisitions or construction–are always either almost or completely under contract with the energy industry’s most powerful players, before one spade of earth is turned or dollar raised in financing. And many of the contracts are based on capacity. Even if energy throughput falls, the owning MLPs still get their cash.

This is pretty clear evidence that we haven’t reached the speculative “build it and they will come” stage of the infrastructure construction cycle. In fact, worries about another 2008 debacle are certain to keep everyone conservative for some time.

Unfortunately, the power of fear and greed in the stock market should never be underestimated. And with so much of the world’s financial system interconnected and extremely complex, the panic in Europe could certainly spread to these shores at some point, if enough people cut and run at the same time.

As we pointed out last week, however, that hasn’t happened yet. Spreads between yields-to-maturity on corporate bonds and US Treasury bonds have widened slightly, as have credit default swaps. But BBB- rated Enterprise Products Partners’ 10-year paper is still trading at a yield to maturity of around 5 percent, down from twice that much in early 2009. Even demand for “junk” bonds remains robust, with B rated Linn Energy LLC’s (NSDQ: LINE) newly minted 10-year debt still selling at roughly the same price it did when issued in early April.

That’s a pretty clear sign that panic hasn’t yet spread to the debt market for MLPs, regardless of rating. Coupled with the continued drop in rates paid on the benchmark 10-year Treasury note toward 3 percent, that means our picks still enjoy access to the low-cost capital that’s made accretive acquisitions so abundant in recent months. And that means opportunities to continue growing assets, cash flows and distributions.

Admittedly, the picture could worsen in coming weeks. Natural gas prices are scraping multi-year lows, and even oil has come down sharply in the face of growing fear of a “Big W” double-dip recession. Black gold this week broke through $70 per barrel on the down side and, as a barometer of global sentiment on future economic growth, could certainly go lower. And any indication of a European contagion hitting these shores would almost certainly widen credit spreads, driving up borrowing costs.

But consider this. Not only did our MLPs weather a full-blown credit crisis in 2008 in good form. They’re actually in far better shape to handle a repeat, thanks in part to the low interest rates that have prevailed over the past year.

“By the Numbers” has the facts. As detailed in column one, distributable cash flow coverage of distributions was again very healthy across the board. That was despite extreme weather and one-time market anomalies that hurt cash flow at some holdings.

The other key column is 2-Year Debt-to-Market Capitalization. This is an extremely conservative assessment of each MLP’s refinancing risk in the near-term. The higher the ratio, the more refinancing each MLP will have to do. In reality, however, refinancing needs of 20 percent or less of market capitalization are minimal. Moreover, the time period–through the end of 2011–leaves a lot of flexibility for management to make moves.

Of the 18 MLPs on the list, 12 face no refinancing of debt through 2011. They’re wholly immune from whatever craziness happens in the credit market between now and then. Only three must refinance debt equal to more than 10 percent of market capitalization. Of those, Kayne Anderson Energy Total Return (NYSE: KYE) is a closed-end mutual fund and the amount represents leverage it can easily rein in. Kinder Morgan Energy Partners, meanwhile, generates free cash flow and expects to generate a lot more this year, making its 15 percent refinancing need a light burden.

The only Portfolio MLP with what could be called significant exposure is Genesis Energy LP (NYSE: GEL). But the entire amount of debt is a credit line that’s only about 60 percent drawn and is due in 2011, when it’s a lock to be rolled over. Management expects a substantial boost in cash flows later this year and into 2011. Moreover, capital needs are light going forward and new general partner Quintana Capital is committed to continuing to grow the business and the generous distribution.

The bottom line: Our favored MLPs may not be entirely impervious to another credit collapse and economic retrenchment, but they’re pretty close. That should bring a great deal of comfort to anyone who’s holding them or considering buying more now that prices have come down.

Taxing Questions

As for higher investment taxes, there’s one area of vulnerability in the MLP universe that we’ve pointed out repeatedly: MLPs that rely on the tax avoidance technique of hedge fund managers called “carried interest.”

This week I received my first press release from a lobbying firm arguing against the legislation that’s passed on the House of Representatives, has the support of the Obama administration and is moving through the Senate. That’s a pretty clear warning sign that legislation doing away with carried interest may be getting close. And with hedge funds and Wall Street the primary defenders of carried interest, there’s little standing in the way of such a bill.

That could spell disaster for several MLPs in our How They Rate universe, including the apparently still popular AllianceBernstein Holding LP (NYSE: AB). We’ve label as “sells” all of the MLPs we see as vulnerable in How They Rate.

The good news is there’s no legislation on the table concerning changing the tax treatment for energy-focused MLPs, which are businesses first and don’t rely on accounting tricks to pay generous distributions. We continue to cover this issue in depth. In fact, we’ll be reporting next month from a conference in Washington, DC, that will address potential taxation issues, among other key developments affecting MLPs.

At this point, however, this isn’t a real worry for MLPs involved in production of energy and owning energy infrastructure. And as we’ve pointed out, MLPs are set to become even more attractive in 2011 as income vehicles, as the tax rate on corporate dividends rises to 20 percent at best, close to 40 percent in a worst-case.

Some subscribers have asked us what MLPs are best suited for IRAs and other tax-deferred accounts, given that most require filing a K-1, even if held in an IRA, and some require paying a tax on unrelated business taxable income (UBTI). The good news is it’s the responsibility of the IRA custodian, not the investor, to file a K-1 for an MLP held in such an account.

In our view, filing a K-1 is well worth the trouble and is far less difficult than just a few years ago. Also, UBTI is minimal for most MLPs. In fact, the unofficial $1,000 in annual income per MLP threshold–at which taxes could become significant in some cases–can be avoided by dividing up your holdings. But this should ease the mind of investors worried about complications.

For those who want no possibility whatsoever of K-1 or UBTI issues, however, there are other options. One is to own management companies of MLPs that pay distributions in equity units. Kinder Morgan Management (NYSE: KMR) is our top pick of this breed, being a perfectly suitable alternative way to own Conservative Holding Kinder Morgan Energy Partners. Another is Kayne Anderson Energy Total Return in the Growth Holdings, which holds a mix of MLPs with varying degrees of reliance on commodity prices and fee-based cash flows.

Kinder Morgan Management and Kayne Anderson Energy Total Return are strong buys.

How Low Can They Go?

That’s the bullish case. The bearish case is what we’ve seen in the market almost every day this month, with prices of even the strongest MLPs slipping as investors seemingly abandon everything for the so-called safety of US Treasury paper.

As the 2010 performance column shows, the action in our recommended Portfolio MLPs has been more sideways than anything else. MLPs reporting disappointing first-quarter earnings (there haven’t been many) and issuing new equity units have taken greater hits. Overall, however, our recommendations are roughly flat on the year.

This is still the same market we’ve been in since 2008. That is, when the news on the economy is bad, investors sell everything including MLPs. When the news is promising, however, the buyers come back and push prices back up.

As the 2008 column shows, in a full-blown crisis MLPs get hurt along with everything else. Some, like Kinder Morgan Energy Partners and Sunoco Logistics Partners LP (NYSE: SXL) were only grazed. But most–even industry icons like Enterprise Products–took very big hits before bottoming.

Historically, crises like 2008 have rarely, if ever, occurred back-to-back. And with most US economic data at least improving, if not already solid, there’s every indication whatever happens this time around won’t be nearly as bad as in 2008.

Even if we do see something approaching that level of severity, however, the 2009 column should set any doubts to rest that a recovery will follow. That is, provided these MLPs remain solid as businesses, as they did throughout the crisis in 2008.

Could you have made more money by selling your MLPs at the beginning of the 2008 crisis and buying them back at the bottom in 2009? Obviously, but only if you had both the serendipity to perceive a top and the emotional fortitude to buy in at what proved to be the bottom, but which virtually no one believed was one at the time. And along the way you would have lost a lot of income.

In contrast, simply buying and holding these 18 solid MLPs would have taken your portfolio value down a hefty 41.2 percent in 2008. But by the end of 2009, you would have rebounded 119.4 percent, wiping out that loss and a whole lot more. And you would have enjoyed tax-advantaged income three to four times the alternatives while you rode out the cycle.

That’s a pretty clear endorsement for the value of buying and holding quality MLPs, even in the worst of times. And if this selloff proves to be anything less than what happened in 2008, the buy-and-hold advantage will widen even more.

We do sell when a pick out-runs its business prospects temporarily, as we did with both Williams Partners LP (NYSE: WPZ) and Navios Maritime Partners LP (NYSE: NMM) earlier this year. And we will recommend selling when an MLP’s business shows signs of imploding, which we’ve done with several under How They Rate coverage.

Other than that, however, you’re really just trading. And the only people guaranteed to get rich off of that are brokers who collect trading fees. That’s also true for anyone using stop-losses in this market, which have basically become guaranteed whipsaws.

We admit it’s already been difficult to ride out these gyrations in the market, and it could get harder. But such are the times when there’s value to be had and those are never good times to sell. And though there’s no great hurry to buy, if you’ve had your eye on any of the picks in the table, now’s a good time to pick them up.