Its pretty common investment wisdom that a bull market hides a lot of mistakes. Companies of all types, quality, and sizes go up together. Fortunately, this doesn’t last forever. Tough markets tend to separate the wheat from the chaff and expose any weaknesses in business models, cost of capital, etc… I’ve noticed this taking place in the MLP space recently. The table below shows a list of the MLPs that I track and how much they have come off their 52 week highs.
Some difference. The strongest performance has been put in by EPD which is down only 4.46% from its high. Other strong performers have been KMP, WPZ, PAA, ENB, LINE and MMP. The weakest by far has been NKA which is down by 46.7% from its high. I can’t think of a better comparison than EPD and NKA. While EPD is hitting the cover off the ball, NKA won’t even make enough to cover their distribution this year. If you want to see how stark the differences are I recommend listening to their recent quarterly conf calls. Not all MLPs are created equal. Of course, now the contrarian in me is interested in NKA after the recent bloodbath. But that’s for another post.
This is yet another reason to own individual MLP issues versus owning the whole index. Individual company performance, business models, capital structures matter a lot in the long run.
Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.