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November 22, 2015
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MLPs declined for the second straight week, but were actually more than 1% positive on the week heading into Friday’s 2.6% decline. In a week that saw the biggest gain in the S&P 500 in months and saw no change in the interest rate on the 10-year, its incredibly frustrating to see MLPs remain under intense selling pressure. It appears that hedge funds are specifically targeting positions of closed end funds, and shorting them to force leveraged selling like we saw at the end of September. Retail fund flows are not there, for whatever reason (tax loss selling is the chorus you hear most often), to provide support and keep hedge funds from targeting the sector.
Time Has Passed
A fellow PM friend of mine asked me at the end of the week: are there any positives we can take away from this week, any reason to feel optimistic?
It’s a great question, and in the medium term, there is plenty to feel positive about with regards to MLPs and their ability to sustain distributions and develop assets. In the short term, however, as in this week, this month and the rest of this year, the main positive to emerge from this week is that we are one week closer to the end of the year and tax loss selling, one week closer to the oil market balancing, one week closer to the positive medium term catalysts. Also, we cleared another $1bn or so worth of equity from the sector’s backlog.
On the other hand, we just finished another week of low commodity prices impacting existing operations, and we are one week closer to volume declines, one week closer to potential bankruptcies among producer customers, and one week closer to interest rate hikes. And in the next week, I don’t expect much will have changed on any of the above counts, except that an additional week will have passed, but at least during that week we will have hopefully enjoyed a peaceful, non-OPEC impacted Thanksgiving break.
Winners & Losers
SUN was the big winner this week as the market reacted positively to the dropdown acquisition from ETP. USDP closed a previously announced acquisition this week and benefited from insider buying while news among the other top and bottom performers was light.
Among the YTD performers, USAC jumped ahead of SRLP displacing it from the top five while AZUR joins the bottom five replacing SXCP. Notably, only 3 MLPs have double digit total returns this year, while on the other end, the bottom 5 are all down more than 80%.
Overall, GPs performed in-line with LPs this week although performance was quite varied across the group. WMB and ETE rallied in the wake of the ET analyst day while SEMG clawed back some of last week’s losses.
News of the (MLP) World
It was a very active week of news for MLPs, with resolution on some key issues (SUN equity overhang, ETP funding needs, DJ Basin pipeline project consolidation), while the MPLX / MWE saga continues and the IPO market remains closed. Expect the next 7 days to be significantly less active for MLP investor relations teams.
Capital Markets
M&A / Growth Projects