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March 30, 2012

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Winners & Losers: MLPs Limp to Quarter End

MLPs were down 1.3% this week, under-performing the S&P 500 (up 0.8%) again this week.  Since peaking on February 24th at 411.7 (+5.6% YTD), the MLP Index has drifted 4.8% to finish the quarter up 0.5%.  Dropping oil and natural gas prices seem to have been the main culprit.  Domestic oil supply surprised to the upside this week, sending oil prices lower, while Henry Hub natural gas spot prices hit fresh 10-year lows around $2.00 per mmbtu.    The impact was felt by MLPs generally, but the hardest hit were the coal focused MLPs, as you’ll see  below.  MLP general partner holding companies, which had been a bright spot so far this year, dropped this week on average, largely a result of a 9.9% price drop for AHGP and 5.1% for ETE.  AHGP was the result of coal weakness, ETE was a result of selling after the close of the ETE / SUG merger.

MLPs with coal exposure dominated the losers this week, led by a 11.4% decline for PVR, followed by 9.9% for ARLP and 8.5% for OXF.  CQP dropped 8.2% after a 4.9% drop last week.  The few bright spots were small cap MLPs LRE, MCEP, and GSJK.  FGP bounced a bit this week, and unique foreign MLP BIP was up 3.3%.
MLPs had a very quiet IR and corporate finance week.  There were no equity offerings this week, no new M&A, and only a minimal amount of press releases.

MLPs finished the quarter up 0.5% on a price basis, just under 2% including distributions.  MLPs haven’t shown the extreme volatility that we saw the last 4 years (click here to read about that), but haven’t had the typical upside volatility we’re used to either.  Compared with large cap stocks (S&P 500), MLPs have had not performed well to date, but given that stocks had the best first quarter they’ve had in years, I expect to see some relative outperformance for MLPs from now through the end of the year, even with very low natural gas and coal prices.  It just makes stock selection increasingly important.  Owning MLPs with NGL and crude exposure, and MLPs that have assets in and around high growth shale plays will be very important.

Coal and propane are still the biggest losers, while small caps dominate the winners year to date.  Nothing new here.  EROC joined the biggest year to date losers this week.

More to come in week thoughts.

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