MLP October Outlook

The MLP Update:

  • September was a choppy month for MLPs. DWA MLP and Alerian indices were up over +4.0% each at one point in Sept. before settling for the month +1.0% and +0.7% respectively.

  • U.S. and global oil production have led recent headlines; attack on Saudi Aramco’s oil facilities, OPEC produced the least amount of oil in a decade for September, U.S. output has fallen since setting all-time highs in April.

  • October macro to watch; Saudi/Iran tension & potential for U.S. involvement, U.S. bracing for a possible large stock market sell off, fragile global economy, U.S./China trade talks.

  • October micro to watch; Where does U.S. crude inventories and production go from here? Will OPEC production rebound now that Saudis are back to pre-attack levels? How will Venezuela’s economic strife impact production?

OPEC production dropped to a 10 year low in the month of September.

US crude oil production in the lower 48 states has fallen for the second consecutive month after peaking in July.

The DWA MLP Index and Alerian MLP Index both peaked over +4% on month but were unable to hold onto these gains but remained positive for September. The DWA MLP Index continues to outperform the Alerian benchmark; September outperformance +0.3%.

Oil recorded a large one-day gain (spiking 15%) but ended up September almost flat. Brent futures closed the month slightly higher while WTI finished in the red.


Macro Backdrop: Energy, equity, & commodity performance for the month of September & YTD


MLP Spotlight

  • Energy Transfer (ET) makes a splash – recently announcing the acquisition of SemGroup for $5 billion. This move contradicts the current mindset of other energy players. Volatility in commodity prices has made midstream reluctant to spend big. Energy Transfer, not concerned with this risk, will bolster their crude transportation, terminalling and export capabilities with the new addition.

  • Blackstone (BX) announced that its willing to consider offers for its Cheniere Energy Partners (CQP) stake. The PE firm’s $1.5 billion investment in 2012 is now valued at roughly $9.7 billion.

  • Enterprise Products Partners (EPD) unveiled plans to extend its Acadian natural gas pipeline. The expansion project is designed to transport increased volumes of natural gas from the Haynesville Shale to the liquefied natural gas (LNG) market in South Louisiana. Additionally, the project will grow nat. gas production in the Haynesville region (Louisiana/ Texas/ Arkansas) from 11 Bcf/d to 14 Bcf/d over the next 6 years.

  • Post Anadarko deal, Occidental Petroleum (OXY) has aggressively tried to sell off assets. The latest attempt to unload came in mid-September with announcement that it will be selling its stake in Plains All American Pipeline (PAA). In combination with PAA’s general partner, Plains GP Holdings LP (PAGP), the offer could likely generate Occidental roughly $650 million.

  • Magellan Midstream Partners (MMP) completed its 135-mile pipeline project connecting Houston and Hearne, Texas which will provide additional capacity of refined products. Magellan also expects to finish construction on new terminals in Midland, Texas and be fully operational sometime next year.

  • Genesis Energy (GEL) plans on investing roughly $300 million into its Granger production facility. The MLP is looking to expand soda ash production capabilities by 750 tons per year. Ideally, the project will span from 2019-2022 with the increased ash production available by mid-2022.

  • NGL Energy Partners (NGL) announced a deal to purchase Hillstone Environment Partners for $600 million from Golden Gate Capital. The acquisition of Hillstone will add more water pipeline and disposal service exposure for the already diversified midstream MLP. The deal is not finalized but expected to close sometime this year.


MLP Index Update:

· The DWA MLP Index continues to outperform the Alerian benchmark; September outperformance +0.3% and YTD outperformance +10.9%

The DWA MLP Index vs. Alerian MLP Index historical total return performance:



MLP Index Constituents by Subindustry

  • The current holdings and weights for the DWA MLP Index as of October 1st, 2019

  • Monthly, the DWA MLP Index rebalances to equal-weight after selecting the top 15 MLPs exhibiting the largest positive relative strength characteristics according to the proprietary Dorsey Wright Relative Strength Ranking Methodology.

What is the DWA MLP Select™ Index?

The DWA MLP Select™ Index includes 15 MLPs based on the proprietary Dorsey Wright Relative Strength Ranking Methodology. Relative Strength attempts to minimize exposure to underperforming positions, while maximizing exposure to securities that have demonstrated the potential to outperform the other securities in the investment universe. On a monthly basis, this index rebalances the equally-weighted basket by selecting the top 15 MLPs exhibiting the largest positive relative strength characteristics.


Disclaimer

Source: Bloomberg L.P. DWA MLP Select™ Index was launched on 5/1/2016. DWA MLP Select™ Index data prior to that date is hypothetical and reflects the application of the index methodology in hindsight. The hypothetical data cannot completely account for the impact of financial risk in actual trading. Past historical or hypothetical data is not a guarantee of future index performance.


For Institutional use only, this is not intended for retail investors, public viewing or distribution.


Past performance is no guarantee of future returns. The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. All third party links are not sponsored, endorsed, or provided by REX Shares, LLC. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use.

MicroSectors™ is a registered trademark of REX Shares, LLC (“REX”).


Dorsey, Wright & Associates, LLC (“DWA”) makes no warranty, express or implied, as to the results to be obtained by Bank of Montreal, the investors in the ETNs, or any other person or entity from the use of the DWA MLP Select Index or the ETNs. DWA expressly disclaims all warranties of merchantability or fitness for a particular purpose or use of the ETNs. DWA and BMO shall have no liability to each other or to any third party for lost profits or indirect, punitive, special or consequential damages (including lost profits) arising out of the licensing arrangements between the parties, even if advised of the possibility of such damages.

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