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October 12, 2011

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Barrons on Action in MLP Exchange Traded Products

Yesterday, I spoke with Barron’s reporter Murray Coleman, who has a blog called Focus on Funds, in which he discusses happenings in ETFs, mutual funds and hedge funds.  Apparently yesterday, his world overlapped the MLP world, when news came out that shares of Exchange Traded Note (ETN) JP Morgan Alerian MLP ETN ($AMJ) were halted for a few minutes about 20 minutes before the close.  After speaking with me, Coleman did in fact publish a post regarding AMJ and the ALPS Alerian MLP ETF ($AMLP), with quotes from your favorite MLP blogger:

Both MLP funds are trading flat on the year. AMJ’s net asset value has lost nearly 7% in the past three months while AMLP has fared better, falling by slightly more than 3% in that timeframe.

But in the past month, those losses have moderated and in the past five trading sessions AMJ’s gained close to 4%. AMLP’s up by 2%-plus in that period. 

“There were a few positive dividend announcements on Tuesday before the market opened that surprised investors,” said Hinds Howard, portfolio manager at Curbstone Group, a Boston-area advisor focused on MLP investing.

One of those came from PAA Natural Gas Storage (PNG). The firm set plans to increase its quarterly dividend by 3.6% from August’s distribution.”That’s a big jump for a company whose shares are down around 30% on the year,” said Howard in an interview. “Investors were pricing in a cut in their distribution rather than an increase.”

Click here for the rest of the Barron’s post.
AMJ is the most popular exchange-traded product (not including closed-end funds) targeting the MLP space, with more than $3 billion in assets.  It was reported this morning that AMJ saw inflows of approximately $120.5 million yesterday, which lead to the issues with the shares on Arca (Yahoo Finance).
I think in addition to investors realizing that MLP distributions increases and earnings will be decent this quarter, there are probably firms out there that chose to cover their short positions to AMJ yesterday.  AMJ is the most liquid product available to investors wishing to short the sector, and perhaps the only one with liquid enough options to use put options as well (at times).  So, if you see large inflows, its certainly a combination of short covering and long interest.  Both are good news heading into distribution and earnings announcement season.
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only.  No positions in PNG, AMLP or AMJ.

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