MLPs rallied exactly 1.3% for a second straight week. MLPs are now up in 5 out of the last 7 weeks and have gained 6.5% in those 7 weeks. The unusual thing about this week’s rally, however, is that it happened despite a substantial drop in oil prices. MLPs underperformed oil prices in the march from the mid-$40s to the low-$50s, so it’s nice to see the breakdown in correlation work in favor of MLPs this week. Having said that, it’s not pleasant for MLP investors to see oil back below $50 (and natural gas below $3) again to close out the week.
Blackstone showed up in the MLP sector again this week, buying into another in-flight pipeline project, although this one was integrated with a recently acquired portfolio company (Eagle Claw). For most of the year, the big deals have been dominated by Blackstone. This week, Global Infrastructure Partners, another PE firm with a history of big deals in the MLP sector (like Access Midstream and Hess Midstream) showed up.
These private equity firms remind me of a certain politician that went to Puerto Rico this week and was tossing paper towels around to crowds seeking aid. MLPs are gaining some traction, it appears, and if MLPs do eventually sustain a recovery, capital provided along the way by these firms will have helped. Or the assets acquired will re-emerge in the form of very large MLP IPOs in the future.
Poll Question Recap – Petty Things
The Alerian MLP Index is now capped at 10% per position, and smaller MLPs have artificially high weights (i.e. weights bigger than their weight in the universe), which is necessary to keep one stock from dominating the index.
I asked a question last week if you readers felt Alerian did enough to fix its index, which didn’t reflect how institutions manage portfolios and wasn’t as useful as a benchmark as it had been. Certainly, with a broad base of index watchers and users, Alerian was not going to please everyone with whatever changes it made.
The answer to my poll seems to indicate that Alerian pleased fewer than 1 in 4 people, while the other 75%+ thought more could have been done to include more stocks that would reflect more of the investable universe.
None of this may matter to individual MLP investors, but being able to have a single, definitive historical return stream of the MLP sector is important for attempting to get comfortable with future return streams from a subset of the MLP universe.
In any event, the market digested the change surprisingly quickly, such that it was basically a non-event this week.
Winners & Losers
Among the top and bottom 5, just AMID had news this week, announcing a drop-down. Just general oscillations with no discernable themes among the winners & losers, outside of some names that were top 5 this week after being bottom 5 last week.
CCLP made it made it two weeks in a row in the top 5, helping it rise one spot on the YTD leaderboard. GLOP joined the top 5 for the year overall, displacing PBFX. We still have only 3 MLPs that have 25%+ returns year to date (not counting those that have been acquired, like OKS, VTTI, PTXP, etc.
General Partners & Midstream Corporations
Median performance among GPs and corporations underperformed MLPs this week, and the return range was tighter. ETE led the way with 3.1% gains.
LNG’s strong week helped push it up into second place for the year in this group. EQGP still leads the way and extended its lead this week.
Canadian Midstream under-performed U.S. midstream this week. KML was weak on a few potential road blocks pop up this week, including fish mats and potential further federal regulatory review for its Trans Mountain Expansion Project. TRP announced official abandonment of its Energy East and Eastern Mainline projects, including an anticipated $1bn after-tax non-cash write off in 4Q, which did not surprise the market.
Last week’s winners Inter Pipeline and Pembina gave up gains this week. KML jumped to the front of the group after I removed Veresen post-merger, and after Pembina fell back.
News of the (MLP) World
We got joint ventures and M&A this week, but maybe not the JVs and M&A we were hoping for. The JVs are positive for the parties involved, but don’t reduce the number of competing planned pipeline projects, and don’t engender confidence that overbuilding will be avoided. In other news, preferred equity continues to gain market share among MLP equity issuance, and there was a potential canary in the coal mine as it relates to natural gas pipeline contract roll-offs.
Growth Projects / M&A