In a holiday shortened week, the Alerian MLP Index (AMZ) traded up 1.0% to make it three straight positive weeks. MLPs seemed to be helped by higher commodity prices and no equity issuance this week. MLPs outperformed the S&P 500 (+0.3%) slightly while underperforming utilities (+1.7%).
Despite the market holiday on Friday, the U.S. jobs report for March showed the lowest amount of job growth in 15 months, which calls into question the strength of the economic recovery and may call into question the Fed’s plan to raise short term interest rates. A weaker recovery in the U.S. doesn’t bode well for much-needed commodity demand, but lower for longer interest rates may steer yield-hungry investors towards high dividend stocks like REITs, utilities and perhaps MLPs.
Oil price finished slightly higher, making it 3 straight positive weeks for oil prices as well. Oil prices rallied Wednesday after data from the EIA showed that oil production declined week over week by 0.4%, the first weekly decline since January. Oil storage continued to build in the U.S. to record levels, but the addition to inventory was less than last week. Natural gas remains volatile week over week, but remains well below $3/mmbtu.
We passed through another month and quarter this week, which gives us an opportunity to take stock in where we are. March saw the MLP Index decline 4.2%, making it 6 negative months out of 7. The index declined 5.2% over the first 3 months of the year, a second consecutive negative quarter. Taken together, the most recent two quarters trail only the second half of 2008 for the worst 6 month stretch in MLP history. In the 5 years that followed, the MLP index produced average annual returns of 29.5%. It’s doubtful that a rally like that is pending, but it is logical to expect some relief at some point.
If investors are seeking relief, history suggest April is the month that offers it. The MLP Index has produced positive returns in April for 10 consecutive years and 15 of the last 17 years. The broader stock market has enjoyed success in April as well, with the S&P 500 averaging +1.3% return in April since 1928, making it the third best month on average. As shown below positive streaks for MLPs are quite rare these days. If April finished negative there will be only one month left with more than 1 year in a row of positive returns.
Winners & Losers
Each of the top 5 represents MLPs that operate fundamentally different assets along the energy value chain, and none of the top 5 announced any company-specific news this week. On the downside, however, negative company-specific news impacted stocks like CELP and SDLP.
No repeats among winners or losers this week, a testament to the lack of follow through and the way MLPs have been trading in fits and starts.
Smaller MLPs continue to dominate the top of the year-to-date performance table. Upstream MLPs dominate the bottom 5.
DLNG dropped out of the top 5, replaced by fellow marine transport MLP CPLP. ARLP climbed out of the bottom 5, replaced by fellow coal MLP NRP.
News of the (MLP) World
With Good Friday, it was a quiet week for MLP press releases. Although there were some interesting drop-downs, and a few new midstream JVs with companies just outside the U.S.
M&A / Growth Projects