uploads///YoY AMZ Index

What Impacted MLPs’ Performance in 2017 despite Strong Crude Oil?


Jan. 8 2018, Updated 1:22 p.m. ET

AMZ fell 13.0% last year

The Alerian MLP Index (^AMZ), which includes 50 energy MLPs, had a strong end to 2017 and rose 4.7% during December. However, these gains were not enough to offset the losses earlier in the year. Overall, AMZ fell ~13.0% to end the year at 275.1. The index ended in the red for the third time in the last ten years.

Of 91 MLPs, 25 ended in the green and the remaining 66 ended in the red. Among the top MLPs, Plains All American Pipelines (PAA), Energy Transfer Partners (ETP), and Enterprise Products Partners (EPD) fell 36.1%, 25.4%, and 2.0%, respectively, while Williams Partners (WPZ) rose 2.0%. We’ll look into the performance drivers for the top MLP losers and gainers in later articles.

The Alerian MLP ETF (AMLP) ended the year 14.4% lower. AMLP underperformed both the SPDR S&P 500 ETF (SPY) (SPX-INDEX) and the Energy Select Sector SPDR ETF (XLE) last year. SPY rose 19.3% while XLE fell 3.6%.

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MLPs were weak last year despite strong gains in crude oil prices, crude oil and natural gas production growth, and strong earnings growth. Of the top 20 limited partnerships by market capitalization, 16 reported YoY (year-over-year) growth in quarterly EBITDA[1. earnings before interest, tax, depreciation, and amortization]. Thirteen of these limited partnerships reported quarter-over-quarter growth in adjusted EBITDA during 3Q17.

MLPs’ weakness in 2017 could be attributed to some distribution cuts and reduced distribution growth as part of balance sheet strengthening measures, uncertainties related to US tax reforms, and weak MLP fund flows.

Fund flows

According to Goldman Sachs Asset Management, total MLP fund flows saw a steep decline in 4Q17 due to uncertainties related to US tax reforms, year-end tax management, and K-1 avoidance.

The overall fund flows in 2017 were lower than in 2016. However, the fund flows are expected to pick up in 1Q18 considering MLPs’ attractive valuations and continuance of MLPs’ tax advantage status compared to C corporations.

In the next article, we’ll look into 2017’s top MLP gainers.


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