MLPs looked like they were headed for the worst intra-holiday performance ever after declining each of the first 3 days this week. Then a 3.9% New Year’s Eve rally brought the index back to exactly flat for the week, which means that the 17% bounce for MLPs since mid-December has held up at least so far as we enter a brand new year.
There was no news and trading volumes were light. Oil prices seemed to matter for MLP price action on some days but not others. The most notable action was in the natural gas market, which saw futures bounce 15% on confirmation that there will be a winter.
The MLP record books were re-written this year, framing new expectations for how bad and how prolonged MLP downturns can be. This was the 5th straight negative quarter for MLPs. Since 2000, the second longest streak of negative quarters is 2 in a row. We’ve seen a 33.0% decline over the last 8 months, 7 of which were negative. 2015 finished down 32.6%, the second worst year on record for MLPs.
Happy New Year! The beginning of 2016 should see less selling pressure than 2015, all else being equal. If you had a big MLP loss to sell, you sold it, and if you wanted to get out of MLPs at some point over the last 15 months, you probably got out.
More volatility can be reasonably expected in 2016. But if the MLP model endures and distribution cuts are limited to the fringes of the sector or to stealth cuts from mergers, MLPs should post better returns in 2016.
In the coming weeks, we’ll review the results of the annual lines we posted last January and fresh ones for this year. As always, your support in those polls is much appreciated and helps all of us gain greater understanding of expectations across my reader base, which is among the broadest cross section of MLP followers available.
Winners & Losers
We saw very wide performance disparity among MLPs this week that belies the stagnant index level. DKL and FELP finished up more than 20% after lagging last week, while 4 MLPs were down more than 10% each after being among the biggest winners last week.
The final winners and losers chart for 2015 performance is listed below. The path for 2015 outperformance in hindsight is pretty clear: own refinery-linked MLPs and don’t own upstream MLPs. Each of the top five has a sponsor that owns refineries. Refineries were beneficiaries of low cost supply and surging demand for refined products. The stability of the refinery sponsors, combined with visibility of growth and financial support helped these MLPs outperform.
General Partner Holding Companies
Median GP performance was in line with MLPs this week. Most of the top performing GPs last week were among the bottom 5, with the exception of OKE.
News of the (MLP) World
Nothing much to report.
Growth Projects / M&A