April 2, 2017
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MLPs caught some positive oil correlation this week, bouncing back 2.1%. MLPs finished the week/month/quarter strong with a 1.4% gain Friday. MLPs beat the S&P 500 and utilities for the week.
There’s a sappy quote I came across on the internet about comfort zone from an unknown source: “A comfort zone is a beautiful place, but nothing ever grows there”. I guess its supposed to inspire you to get uncomfortable and challenge yourself.
MLPs have been challenged the last few years, but the environment for MLPs is something of a comfort zone right now, and it feels like MLPs can grow in this zone. U.S. oil and gas production is certainly poised to grow. Interest rates are still low, oil is above $50/bbl, natural gas is above $3.00/mmbtu, and MLPs have underperformed the market this year. Also, one consistent message from the Trump administration is a pro-energy stance, with another executive order to that effect this week. If the fundamental and regulatory environment stabilizes and remains comfortable, more investment dollars may join MLPs in the comfort zone.
Poll Recap
Last week’s poll was about MLP-specific catalysts, and whether you thought it possible for a specific catalyst to spark broad interest in MLPs. The overwhelming response (72%) was that no such catalyst was going to drive interest with oil prices below $50/bbl.
But here we are just a week later, and oil is back in the green zone above $50. KMI JV or IPO of Trans Mountain received some votes (14%), which is what I expected. It was interesting to see “ENB/EEP/SEP strategic update” get 10% of the vote.
The caveat to the question was the part where the catalyst was positive relative to expectations, over the next few quarters, it will be interesting to see how the hit rate end up playing out.
Status Update: March
It was close, but MLPs finished March negative, down 1.3%. That broke a 4 month positive streak. The quarter was positive, making it 4 straight quarters of positive returns for the MLP Index off the bottom.
Looking ahead, the MLP Index has had positive returns in each of the last 12 Aprils, including 11% last year. 12 years is by far the longest streak of any month, in fact the only active streak (no other month has been positive for the last two years consecutively). So, maybe April is due for a negative month.
Winners & Losers
The CONSOL family of MLPs don’t get too much attention, but this week they were both up double digits, maybe because sponsor CONSOL had a good week (+6.8%). On the downside, AM’s general partner filing for an IPO weighed on AM, but none of the others in the bottom 5 had news.
CCLP and CELP both rebounded after last week’s weakness as small cap, higher beta names continue to get whipped around with directional moves in commodities and sentiment.
YTD Leaderboard
Turning to YTD numbers, every one of the bottom 5 last week were up this week. On the upside, NBLX and OKS pushed higher, and WNRL joined the top 5.
General Partners and Midstream Corporations
Median returns among GPs and midstream corporations outperformed the MLP Index this week, with SEMG leading the way. PAGP was the outlier on the downside, but PAGP was a strong relative performer in the recent oil price correction.
SEMG and ENLC went from worst last week to first this week.
News of the (MLP) World
The MLP and GP IPO machines are back online. What looked like bad timing on Monday when HESM launched the IPO may turn out to be very good timing now that oil price sentiment seems to have turned positive again.
Capital Markets
Growth Projects / M&A