MLPs Recover Marginally after 2 Weeks of Hammering

AMZ fell 0.8% last week

MLPs recovered marginally last week after two weeks of hammering. The Alerian MLP Index (^AMZ), which includes 50 energy MLPs, rose 0.8% last week to end at 260.3. At the same time, the Alerian MLP ETF (AMLP) rose 0.6% while the Energy Select Sector SPDR ETF (XLE) ended the week 1.3% higher.

MLPs’ gains last week could be due to gains in crude oil prices and strong US drilling activity. US crude oil rose 1.3% last week to end at $62.0 per barrel. For recent updates and the outlook on crude oil, see Possible Downside for US Crude Oil Next Week.

MLPs Recover Marginally after 2 Weeks of Hammering

Out of the total 92 MLPs, 53 ended in the green, three remained unchanged, and the remaining 36 ended in the red. Among the top MLPs, Plains All American Pipelines (PAA), Enterprise Products Partners (EPD), and Williams Partners (WPZ) rose 4.5%, 2.9%, and 0.2%, respectively, while Energy Transfer Partners (ETP) fell 1.1%.

MLPs continue to trade in the red over the last month as US markets continue to rally. AMLP has lost 2.7% in past month, while the SPDR S&P 500 ETF (SPY) has gained 6.6%, mainly due to a rise in US Treasury yields. The US ten-year Treasury yield rose 4 basis points to 2.9% by the end of last week, which is higher than the week before. Moreover, it’s still higher than the historical averages. A rise in US bond yields makes MLPs, which are generally high-yielding, look relatively unattractive due to their higher risk. High bond yields result in a higher cost of capital for MLPs.

Fund flows

The Alerian MLP ETF saw a net outflow of $42.3 million last week while the J.P. Morgan Alerian MLP Index ETN (AMJ) saw a net outflow of $2.4. Overall, AMLP has seen a net outflow of $600.3 million since the start of this year while AMJ has seen a net outflow of $2.0 million. In the next part of this series, we’ll look into last week’s top MLP gainers.