September 14, 2014
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MLPs held up for most of the week, and were flat heading into Friday, when they fell sharply, along with the rest of the energy sector (the S&P 500 Energy Index -1.5% Friday and -3.7% for the week). Lower crude oil prices appear to be the culprit when it comes to weak energy stock performance. Rising interest rates hit utilities hard (UTY -1.8% Friday and -3.1% for the week). MLPs, susceptible to both rising rates and lower commodity prices, outperformed energy stocks and utilities (MLP Index -1.8% for the week).
The interest rate on US 10 year Treasuries rose 15 basis points this week, including 8 basis points Friday. The 10 yr rate is now 2.61%, the highest it has been since July 7th. That July 7th high came immediately after a week when the rate rose 12 basis points, and marked the beginning of the worst July ever for the MLP Index (-3.6%).
Oil continued its slide this week, with WTI closing at $92.30/bbl, down 1.1% for the week. Brent crude oil closed below $100/bbl for the first time in 17 months this week, on the strength of supply growth in the U.S. it appears.
2% Down Days
The MLP Index was down more than 2.5% intraday on Friday, and was more than 2% down for most of the day. I knew it had been a while since the index closed down more than 2% in a single day, so I started tallying up such events over the last 7.5 years. It hasn’t happened since June of 2013, and it is happening with much less frequency in recent years, as shown below. MLPs rallied in the final hour of trading to keep 2014 free of 2% down days.
The shallower nature of intra-day MLP selloffs these days may be attributable to the increase in institutional capital monitoring the sector. When MLPs seems to be so well-positioned fundamentally, and when stock prices continue to show strength, new money has a hard time finding an entry point into MLPs. In that environment, dips get bought sooner than before. Does that mean we won’t have a 2% down day this year at all? I guess it’s possible, but it would be a first for the MLP Index. On the other hand, we probably won’t see 26 such days in a single year any time soon.
Winners & Losers
Each of the top 5 performing MLPs this week is not a member of the Alerian MLP Index, which may have helped them avoid the sector-wide downdraft Friday. OILT led all MLPs with a 5.3% gain for the week, making it 2 weeks in a row for OILT in the top 5. TEP’s announcements around distribution growth surprised the market a bit, sending units higher. There was no other news around the top 5 MLPs.
On the downside, VLP’s strength earlier in the year makes it susceptible to selling at these levels, same with EQM. None of the bottom five had any company-specific news and each one was from a different MLP sub-sector.
In terms of year to date total returns, SUSP climbed into the top 5, displacing EQM. OILT leapfrogged TEP into 3rd place, while the bottom 5 saw no changes in ranking or constituents. Each of the bottom 5 were down for the week.
MLP News
A lot happened this week outside of MLPs. Fall weather has returned to the Northeast, Apple launched a campaign to make smart watches cool and using plastic credit cards uncool, Ray Rice jerseys are no longer fit to wear in public, and Alibaba’s IPO price range makes it likely to be the largest US IPO ever.
In MLP land, on the other hand, not much happened, especially compared with last week’s flurry of pipeline announcements and equity deals. A preferred offering, two debt deals, one growth project and one tiny acquisition is all there was.
Equity
Debt
M&A / Growth Projects
Other MLP News
Industry