Before I get into this week’s news and thoughts, I want to take minute to reminisce on the last 365 for MLPs and the market. Last year, on April 28, 2011, the MLP Index closed at 390.0, its highest close for 2011. The next five trading days were down, chopping 6.6% off the index in the process. MLPs continued lower throughout the summer, bottoming at 315.9 in August, a full 19.0% below the 4/28/11 closing level. A remarkable fall and Christmas rally sent the MLP Index back above 390 on the first trading day of 2012. Will this May bring back the downside volatility? Probably not without a tax scare or an interest rate spike back above 3%, but its always good to remember that volatility happens, even if MLPs have proved quite stable year to date. The S&P 500 peaked in 2011 on April 29th at 1363.6, and had a similar slide after that, bottoming 19.4% lower at 1099.2. Stocks recovered slower than MLPs, but the S&P 500 finished 2011 14.4% higher at 1257.6, still 7.8% below its late April peak.
Back to this week’s more recent history. MLPs finished up 0.4% in a week that saw virtually every asset class rise. The S&P 500 finished above 1400 again after a 1.8% rise week over week. U.S. treasuries rose, sending the benchmark interest rate down to 1.93%. Gold and oil were up a bit, and natural gas futures jumped 13.5% all the way to $2.19, so still a long way to go back to most research analyst’s long term natural gas price decks (~$4.00 per mcf). MLPs continued their restrained volatility (see my earlier commentary on how few days in 1Q MLPs changed in price by more than 1% in a day, a near record); the 0.4% move trailed most stocks, including energy stocks (XLE, +2.7%) and utilities (+1.4%).
MLP earnings results were inline or positive, and NRGY took a major step towards fixing its problems (more on that below), so why the under-performance? My guess is that in these weeks when risk assets are rising, investors get more excited about other sectors and less interested in dividend stocks and MLPs. But even the Dow Jones U.S. Dividend 100 Index was up 1.0% last week. Maybe there is some investor saturation after the massive equity issuance levels for MLPs over the last 2 quarters. By investor saturation, I mean perhaps we are nearing the point where most everyone that knows about MLPs and likes them is already invested in them, and without a step change in institutional interest, MLPs may be range bound as a sector. Of course, there are always individual MLPs popping and dropping by large amounts, but this year those pops have been offset by drops of other MLPs, and larger cap MLPs that dominate the MLP indexes have mostly stagnated or sold off this year.
Maybe MLPs have just gone stale compared with other securities. According to Merriam Webster, the definition of stale is (1) tasteless or unpalatable from age, (2) tedious from familiarity, or (3) impaired in vigor or effectiveness. Sounds about right, but its usually times like this when everything is calm that the bottom drops out.
News of the (MLP) World
No capital markets transactions this week, but aside from earnings releases above, there were a few news items of note.
MLP CEO Compensation Review
The final annual proxy statements were filed this week, so we now have compensation data for all MLPs. Stay tuned later this week for my annual review of MLP CEO compensation. A quick preview: the top 3 base salaries in the MLP space went to GLP’s Eric Slifka ($800,000), ATLS’s Edward Cohen ($750,000), and LINE’s Mark Ellis ($746,154). The top 3 highest in total compensation: ATLS’s Edward Cohen ($20.9 million), APL’s Eugene Dubay ($9.4 million), and LINE’s Mark Ellis ($9.0 million). As you can see, there is no correlation between market capitalization of a given MLP and its CEO’s compensation. GLP and APL/ATLS are not even in the Alerian MLP Index that includes the 50 largest MLPs (roughly 50, there are some companies with multiple Index constituents, like KMP/KMR and ETP/ETE). LINE compensation numbers make more sense. LINE is the 9th largest MLP and far and away the largest E&P MLP. Also, Mark Ellis is not a founder of LINE. MLP founder CEOs tend to have lower salaries and instead reap massive profits from GP and LP ownership (e.g. Rich Kinder’s famed $1 salary).