What Kept MLPs in the Red Last Week?

AMZ fell 1.8% last week

MLPs were weak last week despite the gains in crude oil prices. The Alerian MLP Index (^AMZ), which includes 50 energy MLPs, fell 1.8% last week to end at 265.4. The Alerian MLP ETF (AMLP) ended the week 2.3% lower.At the same time, the Energy Select Sector SPDR ETF (XLE) was up 1.0%.

What Kept MLPs in the Red Last Week?

Out of the total 92 MLPs, 65 ended in the red, one remained unchanged, and the remaining 26 ended in the green. Among the top MLPs, Plains All American Pipelines (PAA), Williams Partners (WPZ), Enterprise Products Partners (EPD) fell 5.0%, 3.1%, and 2.6%, respectively, while Energy Transfer Partners (ETP) rose 3.6%. ETP’s shares rallied following its strong 4Q17 earnings announcement. For post-earnings analysis on ETP, see How ETE and ETP Fared in 4Q17.

MLPs’ weakness last week could also be due to the rise in US Treasury yields. The US ten-year Treasury yield saw a new YTD high of 2.94% last week. The rise in US bond yields could make MLPs, which are generally high-yielding, look unattractive due to their higher risk. Moreover, a rise in bond yields results in a higher cost of capital.

Fund flows

The Alerian MLP ETF saw a net outflow of $51.0 million funds last week while the J.P. Morgan Alerian MLP Index ETN (AMJ) saw a net inflow of $11.9, which indicates a shift of investors’ focus to fixed income–focused MLP funds from equity-focused MLP funds amid a rise in US Treasury yields. Overall, AMLP has seen a net outflow of $358.9 million since the start of this year, while AMJ has seen a net inflow of $1.6 million.

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