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August 23, 2013

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Week Thoughts: No News, Good News for MLPs

MLPs bounced back this week with the Alerian MLP Index a gaining 1.5%, including gains on each of the last 4 trading days.  MLPs on average were well ahead of the S&P 500, which gained 0.5% (with most of it coming on Friday).  The US 10 Yr interest rate was up throughout the week, and down sharply on Friday, leaving them roughly flat for the week, and still more than 100 basis points higher than at the beginning of 2013.  Oil dropped a bit this week, but natural gas and NGLs were up, especially propane, which is up more than 35% since bottoming around $0.82/gallon in late June.
Weekly MLP Review_8-23-13
YTD, the MLP Index is up 20.4% on a total return basis, beating the total return of the S&P 500 despite the 106 basis points backup in the US 10 YR  rate.  The big question I get these days: how will MLPs do in a rising interest rate environment?  Well, rates have been spiking this quarter and MLPs aren’t doing so well, but when you zoom out a bit, MLPs have performed extremely well YOY and YTD in the face of dramatic interest rate increases.  Gold and corporate bonds, not so much…
Because I don’t have much to say on this vacuous week in MLP Land, I decided to post a few price charts showing price action of the MLP Index and the S&P 500 Index since June 28th (so this quarter to date) and in the last week… It looks to me like we may have already seen the lows for the MLP Index for the second half of 2013… or MLPs could break down further.  I think it depends greatly on how much equity MLPs collectively try to churn out via ATMs and equity offerings starting directly after Labor Day.

Alerian_SPX_Last Week

Winners & Losers
AMID (+8.5%) was the big winner this week (and was in the top 5 last week), as the market seems to appreciate the subordinated units / IDR restructuring announced with 2Q earnings on 8/13.  HCLP also makes its second straight top 5 appearance.  MCEP was in the bottom five last week, bounced back this week.  Nothing out of the ordinary, high volatility names like EVEP, EROC and SMLP tend to show up at the extremes of the MLP sector, and they did this week as well.


BPL replaced MMLP in the top five this week, no other changes among the constituents in the YTD winners and losers chart.


News of the (MLP) World
The printing presses for M&A announcements and for primary equity offerings typically shut down in the two weeks prior to Labor Day.  This week was no exception.

  • PVR and Devon Energy announce sale of Thunder Creek Gas Services , LLC to Meritage Midstream Services II, LLC, backed by $500mm of initial equity commitments from Riverstone Holdings (press release)
  • VNR announces monthly distribution of $0.2075 ($2.49 annualized), a 1.2% increase month over month
  • FGP announces $0.50/unit distribution, extending its record of consecutive flat distributions to 71 quarters, almost 18 years
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