The MLP Index outperformed the broader stock market this week, trading up 0.6% compared with a 0.4% decline for the S&P 500. Distribution ex-date season has begun as well, which helped added another 0.6% to the Alerian MLP Index total returns for the week. It was the third straight week that MLPs were up and the S&P 500 was down, which would be considered positive momentum for MLPs, if you believe momentum exists. The 10-year U.S. treasury rate declined again this week, and is down 38 basis points year to date to 2.65%. Natural gas and ethane prices dropped week over week (but remain elevated), while propane and crude oil edged higher.
January was positive for MLP returns for the 6th straight year, although performance this month was a far cry from last January (+12.6%). The positive total return month makes 5 straight positive months for the MLP Index, which is nice, but not even close to the longest consecutive positive month streak, 15 straight months of positive returns from October 2002 through December 2003. Below is an update of where the MLP Index is relative to recent time periods.
The MLP Index was positive in January while the S&P 500 was down, which has happened in 5 previous January’s since 1996 (the starting point for MLP Index historical data). Each of the previous 5 times, the MLP Index has finished the year with returns higher than the S&P 500, in some cases much higher.
The magnitude of the index changes in 2014 most closely resembles that of 2010 (in fact they are almost identical). That year turned out pretty well for MLPs, but the economy was in a much different position in 2010 than it is now. In 2010, the Fed fire hose of liquidity was still at full blast (the second round of quantitative easing was announced in November of 2010).
This week’s poll question attempts to take the pulse of the market’s perception of the biggest risk factors that might impact MLP returns in 2014. My readership is a very educated group of MLP investors, professionals and executives, and I believe their opinion aggregates what they are hearing from investors and amongst themselves. If the poll question doesn’t sufficiently capture what you hear in the market, please send me an email with a fuller description.
Which index will perform better in 2Q 2019?
Total Voters: 120
Year to date, the MLPs in the top five are up on no real surprising news, although ARP’s distribution increase announcement this week helped pop it into the top 5. 3 of the bottom 4 MLPs have had negative announcements this year (NRP, EROC and EPB) and are not expected to grow their distributions in 2014. CMLP is the outlier, down 7.2% this year, despite having announced distribution guidance that calls for 6% to 10% distribution growth in 2014.
Enjoy the big game everyone, see you back here next week after a week long discussion about Peyton Manning’s legacy (win or lose).
News of the (MLP) World
TransCanada (TRP) passed through another checkpoint on its epic quest for approval of its planned Keystone XL pipeline this week when the State Department’s environmental review of the pipeline plan concluded that it would not have a significant impact on overall greenhouse gases and future oil sands development (see article here at the New York Times). TRP’s stock price didn’t move much on the news (+1.4% Friday) and was down week over week. Still several steps to go before TRP completes its quest, and then it has to actually build the pipeline.
Enterprise Products (EPD) announced better than expected 4Q results this week, strong distribution coverage and a generally positive outlook. Across town, the Kinder Morgan complex held an analyst day this week. As predicted by my readers a few weeks ago, there was no major announcement that had any meaningful impact on any of the stocks in the family (KMI, KMP, KMR, EPB). It was announced that EPB is not expected to grow its distribution until at least 2017, which was a mild disappointment based on market expectations. Earnings season really ramps up next week, expect there to be many questions about the recent rise of commodity prices and their impact on forward results, and about the impact of severe winter weather.
M&A / Growth Projects