Why MLPs Underperformed the Energy Sector Last Week

MLPs underperformed the energy sector and the broader US markets last week. The Alerian MLP Index (^AMZ), which includes 50 energy MLPs, fell 2.9% last week to end at 252.7. At the same time, the Energy Select Sector Index (^IXE) fell 0.9% while the S&P 500 (^GSPC) ended the week 1.1% lower.

MLPs’ underperformance relative to the energy sector and the broader markets—despite strong crude oil prices and robust drilling activity—was due to sharp declines across the MLP space following the FERC ruling on income tax policy.

Out of the total 92 MLPs, 58 ended in the red, three remained unchanged, and the remaining 31 ended in the green. Among the top MLPs, Energy Transfer Partners (ETP), Plains All American Pipelines (PAA), Williams Partners (WPZ), and Enterprise Products Partners (EPD) fell 4.6%, 2.3%, 1.8%, and 1.7%, respectively. The Alerian MLP ETF (AMLP), which comprises 25 energy MLPs, fell 3.1%.

AMLP has lost 6.8% in the past month while the SPDR S&P 500 ETF (SPY) is up 0.4%. AMLP’s underperformance relative to SPY could be attributed to a rise in US Treasury yields, an increase in regulatory issues, and, most recently, the FERC tax ruling.

The Alerian MLP ETF saw a net inflow of $29.6 million last week after several weeks of net outflows. This shift could be attributed to MLPs’ attractive current valuation. The J.P. Morgan Alerian MLP Index ETN (AMJ) saw a net outflow of $11.1 million. Overall, AMLP has seen a net outflow of $570.8 million since the start of this year while AMJ has seen a net outflow of $7.2 million.

In the next part of this series, we’ll look into last week’s top MLP losers.