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September 9, 2012

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Winners & Losers: MLPs Holding Steady

MLPs were up slightly this week, but trailed the market, which shot higher on Thursday and a bit more Friday to close the week up 2.3% and at its highest point in more than 4 years.   Gold also outperformed for the first time in a while, probably on the news of European Central Bank’s pledge to continue to be a lender of last resort and on the expectation that our central bank will launch more stimulus next week.
Oil recovered along with the market in the back half of the week on general market euphoria and stimulus hopes to end the week flat.  Natural gas didn’t participate this week, down 4.1% week over week.  Commodity prices probably had less to do with MLP underperformance than the 4 equity deals that priced this week for more than $1.0 billion.  MLPs held the line this week, but we’ll see if that continues in the next few weeks.

This week put MLPs further behind the S&P 500 for the year, putting its 13 year streak of outperformance in jeopardy as we enter the home stretch of the year.  I doubt MLPs will catch up unless the S&P 500 takes a big dive, and the market’s insatiable yield hunger keeps MLPs flattish.   Despite the underperformance, the MLP total return index closed at its highest point since February.
MLP strength even has the Wall Street Journal calling it a bubble.   The WSJ’s Heard on the Street article cited the recent trend of refinery assets being spun off into MLPs  (Alon USA Energy’s IPO filing last week, for example).  The article also cited MLP investors disregard for lower ethane prices, bidding up gathering and processing names in the face of weaker fundamentals and high multiple acquisitions.

Winners & Losers

GSJK was the surprise winner this week, up 8.1% this week, up 57.6% since it hit $10.97 on June 26, and about 8 cents from its 52 week high in late March.  On the downside, BBEP was the only of the four MLPs that issued equity to land in the bottom 5, so that’s a win for the other three (NS, TGP and EEP).   

In the top 5 and bottom 5 year to date, there was a shake up last week.  NKA lost its top spot after CLMT had another strong week.  CPLP dropped out of the top five, replaced by HEP.  NRP moved out of the cellar, replaced by SPH, and CMLP dropped to the second to last spot after dropping 4.4% this week.

Back to wrap up the news of the week tomorrow.  Enjoy opening day of the NFL.

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