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March 23, 2013
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MLPs posted their biggest weekly gain of the year since the first week of the year when MLPs posted a 7.0% gain on the Euphoria following the New Years Eve deal to avoid the fiscal cliff. That week’s gains came when the S&P 500 went up 4.6%. This week’s gains were against the grain of a flat market.
This week’s gains (as far as I can tell) were the combination of higher commodity prices (including a welcome uptick in NGL prices, which remain woefully low), a low interest rate-friendly Fed release on Wednesday, and investors anticipating the money Neuberger Berman’s new MLP closed end fund will need to invest into MLPs once the fund prices its IPO (expected next Monday afternoon). Last week, I wrote that after a 5 day shallow sell-off in MLPs, the bounce back that followed would probably be shallow as well I was clearly wrong. After 7 straight down days, the MLP index exploded with 3 straight 1% days to close at a fresh all time high.
There were some headwinds in MLP land, like 5 follow-on equity offerings (STON, MEMP, HEP, CMLP, LRE), but the combined total gross proceeds of those 5 deals ($553.1mm) doesn’t even add up to one typical ETP, WPZ, or LINE deal. So, a lot of press release, but not an overwhelming amount of new MLP paper this week.
Not sure what we should expect from MLPs next week. I have been wary generally of MLP valuations recently, and so my bias would be for another dip next week, but it seems as though any momentum the interest rate spike crowd was starting to gain has been crushed for now, so maybe its smooth sailing as investors bid up MLPs in advance of the next seasonal catalyst: distributions in May. MLPs typically get bid up as distribution ex-dates approach.
MLPs still represent a great alternative to other income-oriented securities, and so far this year, it hasn’t mattered much which ones you own or buy. A year like this one is starting out as is hard on active managers. If you aren’t fully invested when the index goes up 3% in a week, it can really hurt relative performance. Not what you’d call a stock pickers market, unless you picked the top 5 performers this year to date, then you’d be up 30%+ compared to the index at 17.6%.
Winners & Losers
HEP was the big loser this week, pricing its equity offering at -3.5% from prior close and then dropped another 3.1% the next day. Half of HEP’s offering was secondary units sold by parent HollyFrontier (HFC), which may have had something to do with it. CMLP didn’t fare much better. Other MLPs that executed offerings this week fared much better: MEMP closed the week up 5.9% from its offering price, STON up 4.9% from its offer price and LRE up 1.4%. CPLP was the big winner this week after last week’s preferred private placement and acquisition.
For the year, just 4 MLPs are down, which is incredible. Of the winning-est winners, GLP is still in the lead. OILT and HEP popped up into the top five, displacing CLMT and HEP.
GPs on average have outperformed everything year to date, after a 3.3% average positive move this week.Variable distribution MLPs are under-performing the rest of the MLPs after a -1.1% average decline, led by a -10.8% down week for RNF and a 6.3% decline for ALDW.
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