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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Week Thoughts: Midstream Militia Retreats

After a few weeks of positive performance, midstream rolled over this week.  Energy stocks in general were negative, despite benign commodity price movements and strength among market indexes (which clearly are dominated by tech stocks).  The ramping up of election rhetoric with the Democratic National Convention this week may have led to marginal selling of energy stocks and midstream stocks in favor of less “controversial” stocks.

The MLP Index has declined for 7 straight trading days (-5.6% over that stretch), including each of the 5 days this week.  By comparison, green posterchild stock TSLA has traded up for 8 straight trading days (+49% during that streak), including all 5 days this week. 

Ever year or so, there is a perfect time to buy MLPs for a short-term pop from extreme negative sentiment levels. For example, since the absolute bottom in March, MLPs have actually outperformed the Nasdaq, including distributions. 

However, over the last two months, AMZ has given up some of its gains, while the broader midstream has held up and the Nasdaq has taken off.  Also, YTD returns for MLPs are -30%+ compared with positive returns for Nasdaq and S&P 500.  Investing in MLPs has become shorter cycle and are more frequently being traded, likely using the large ETF, as opposed to being held.

Friday Flex by BTS Army

It was a quiet week in the market, one that saw the passive disdain for energy and midstream stocks.  There was quite a bit of excitement in my household, however.  On Friday, Korean pop music super group released its first English language single with a video released at midnight.  I know this because my 2 older children are members of the “BTS Army” and were eagerly awaiting the release. 

The music video for the song “Dynamite” broke the record for the most-viewed video in 24 hours on YouTube at nearly 100 million views (WSJ).  My children accounted for at least 500 of those views.  The walls of their rooms are covered with images of these young fellas.

Also, I am still waiting for my refund from the BTS concert we were planning to attend in New Jersey in May that was canceled, one of few positive developments to come out of the pandemic.

From MLP Army to Midstream Militia

MLPs used to have their own “army” of sorts: a large retail investor following happy to collect large and growing tax-deferred distributions in taxable accounts that would eventually be passed along to heirs at a stepped-up basis.  Bankers, management teams, asset managers and even greedy retail investors blew that up over the last 5 years.  There are still a few faithful MLP fans out there, the “MLP Minutemen” or “Midstream Militia”, but most large institutions eschew them at this point.  Also, the ESG “army” of supporters continues to grow, to the detriment of MLPs, which tend to be problematic from an E and G perspective.

The trends towards ESG and towards a potential change in political power in the country are likely to lead to more volatility.  Combine that with another tax loss selling season as investors seek to pare losses on midstream with gains on tech stocks, and midstream headwinds are likely to persist a while longer.  For the remaining MLP fans, this could mean more opportunities to load up even further on high yields in the MLP space.

Winners & Losers


Downstream-focused MLPs with heavy retail ownership comprised most of the top 5 (SUN, DKL, WLKP), but ET made a rare appearance near the top of the group.  If ET traded in-line with other large MLPs, the AMZ would have seen much worse performance.  On the downside, liquids-focused stocks with leverage challenges were the worst performers (GEL, NS).  GEL down 17% on no news is rough.

HMLP and TGP gave back some of their gains from last week, while WLKP repeated in the top 5.  On the YTD leaderboard, DKL tookover the top spot and CQP moved into 3rd place overall.  Among the biggest losers, GEL’s awful week makes it the biggest loser to date this year, down 70%+, including distributions.

Midstream Corporations

U.S. Midstream corporations struggled this week too.  Every name in the group was negative, but natural gas-focused names AM, KMI and WMB outperformed.  Other natural gas-focused names were among the weaker performers, including ETRN and LNG.  Liquids players OKE, TRGP and PAGP were also weak.

PAGP and OKE repeated near the bottom the group, while WMB and AM repeated near the top.  That has been the trend all year, as shown on the YTD leaderboard where AM and WMB lead OKE and PAGP by more than 5,000 basis points.

Canadian Midstream

As we’ve come to expect, Canada did not experience the same volatility that U.S. midstream stocks did this week.  TRP’s positive week and ENB’s flat week helped AMNA massively outperform the U.S.-only indexes. 

TRP continues to outperform ENB.  ENB seems to be suffering from negative sentiment ahead of the election on its major Line 3 Replacement, which continues to face opposition.  Line 3 Replacement seems to matter much more to ENB’s outlook than Keystone XL does to TRP.  Keyera has made a strong comeback in recent weeks following 2Q earnings, and Keyera is now ahead of Pembina YTD. 

News of the (Midstream) World

One of the lightest news weeks in recent memory.  No news isn’t necessarily bad news.

Capital Markets

  • Delek Logistics (DKL) filed form S-3 to register the 14mm units issued in the IDR elimination transaction announced last week (filing)
  • Dynagas LNG Partners (DLNG) filed equity distribution agreement to sell up to $30mm of common units at-the-market (filing)

M&A / Growth Projects

  • Friday afternoon, Rueters reported that Mexico’s government asked IEnova (Sempra subsidiary) to commit to a second LNG facility in a different location that its ECA LNG facility, before the government would issue the LNG export permit to IEnova for its ECA LNG facility (Reuters)
  • The Minnesota Department of Commerce filed an appeal of Line 3 Replacement’s certificate of need, arguing that ENB did not introduce a long-range demand forecast necessary to approve the certificate (MPR News)
  • Kinder Morgan (KMI) filed request with FERC for authorization to place final LNG export train in-service