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February 3, 2012

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Winners and Losers: MLPs Power Through Earnings and Ex-Dates

Week Over Week
The S&P 500 extended its lead over MLPs, with a 2.2% week, compared with 0.6% for MLPs.  Oil and natural gas prices were down on the week, with natural gas giving back most of its gains from last week.  Variable distribution MLPs continued to outperform, up 4.3%, mostly on the back of Rentech’s 10.4% week over week change.  MLPs traditionally trade poorly during these few weeks when most of them have ex-dates.  Most of the ex-dates have passed at this point, so expect MLPs to recover next week (all else being equal).  So, ex-dates, weak commodity prices and what appears to be rotation into risk on assets like stocks all combined to hurt MLPs on a relative basis this week.

NRGY bounced this week after its dramatic drop last Friday.  Other propane MLPs (FGP and SPH in particular) were beaten down this week, but NKA had the worst week.  Within the sector it appears based on the winners and losers this week that investors are rotating into MLPs with more exposure to oil than natural gas (see OILT, MCEP and EVEP).

Year to Date Performance Comparison
MLPs are still up on the year, and on a total return basis are up more than 3%, which is fine.  The gap between the winners and losers is very wide for so early in the year, around 50 percentage points (from CPLP at +26% to NRGY at -24%).  Variable distribution MLPs (almost all fertilizer MLPs), are doing very well, driven by Rentech Nitrogen’s 53% price increase so far this year.  Also, general partner holding companies are outperforming as usual.

Propane continues to dominate the bottom 5, as SPH joins NRGY and FGP, which have occupied the bottom 2 spots for most of the year so far.  CMLP continued lower this week, as the drop in natural gas price so far this year is perceived to be hurting its business substantially.  MCEP jumped into the top 5 this week, benefiting (I think) from a rotation away from gas and into oil heavy names, as mentioned above.  Niska Gas Storage (NKA) dropped out of the top 5 with a big drop after earnings released this week indicated continued headwinds (press release).

More to come later this weekend.   Lots to discuss, including data points this week from earnings and 2 equity offerings.  Also, there was a new MLP initial S-1 filed by Foresight Energy Partners, a coal company backed by Carlyle.

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