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June 10, 2011

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Week Thoughts: Stocks Down, MLPs Up

MLPs had an extremely strong finish to the week after a rough few days earlier in the week.  The MLP Index rose 1.6% on Thursday, then another 0.7% on Friday.  For the week, MLPs were up 0.2%, after recovering from a 2.1% drop on from last Friday to Tuesday.  See the chart of this week’s action for the Alerian MLP Index.
Alerian MLP Index price performance for the week ended June 10th, 2011.
This Friday’s positive action seemed to link MLPs with lower interest rates rather than lower stock prices, as the 10-year treasury interest rate was down Friday.  Decoupling from the broader markets and from commodity prices is welcome for MLPs, which remain 6.8% lower than their peak at the end of April, which actually matches the decline in the S&P 500 since then.
Master Limited Partnerships compared with S&P 500 and 10-Year Interest Rates over various time periods.
Contributing to the support MLPs found on Thursday, Clearbridge MLP Opportunity Fund (EMO) raised $540 million on Friday (link to Press Release at Yahoo Finance).  This deal priced 2 weeks earlier than expected, adding significant liquidity (or the expectation of it) into the MLP market.
EMO is a closed-end fund, which plans to invest 80% of its capital in MLPs under normal market conditions, and can use leverage up to 33% of their assets.  Legg Mason is sponsoring EMO, collecting 1.0% of assets in a management, and then sending 70% of that management to ClearBridge Advisors LLC.  This is the second fund for ClearBridge, which launched CEM with $1.1 billion last June.  Total return for CEM since it went public has been 14.4%, compared with 24.7% for the MLP Index.
In other interesting MLP news this week, Alliance Energy (a related company of Global Partners), has been served with a lawsuit by a group of angry gas station owners in Connecticut who claim that Alliance has overcharged them unnecessarily for gasoline and has contributed to Connecticut having the highest gasoline prices in the nation.  Global (GLP) was down approximately 2.4% on the news today, and now yields 8.45%.  From the press release:

Eleven plaintiffs who operate 16 gas stations are listed in an unfair trade practices lawsuit filed in Hartford Superior Court on Thursday against Waltham, Mass.-based Alliance Energy LLC; Irving, Texas-based Exxon Mobil Corp.; and other defendants. The station operators are seeking an undetermined amount of damages and a court order mandating fair pricing of gasoline products, among other actions, while Alliance’s owners are pledging to fight what they call unfounded accusations.

The operators run some of the 88 gas stations in Connecticut that Alliance Energy acquired from Exxon Mobil in February. They allege that when Alliance took over, the company began charging them 17 cents to 22 cents more per gallon of gas than what they were paying Exxon Mobil and imposed numerous other conditions that they say have hindered their ability to compete. Their lawyer believes Alliance is forcing similar conditions upon all its other stations in the state.

It will be interesting to see what the follow through is for MLPs (and the market) early next week.  Have a good weekend, and thanks for reading.
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only. Long GLP.

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