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Master limited partnerships, oil & gas, energy, natural resources
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There are 120 MLPs currently trading and 84 investment products designed to give investors access to MLPs and energy infrastructure. Although having a wide array of investment options is generally good for the market, individual investors may feel a bit overwhelmed. The right investment product will depend on many factors specific to the investor. We always urge investors to look under the hood and understand the investment product before allocating any funds.

Liquidity is an important risk measure of how quickly an investor or investment manager can enter or exit a position without dramatically affecting the price. For instance, when investing in a large MLP with a great deal of volume, such as Kinder Morgan Energy Partners (NYSE:KMP) or Enterprise Products Partners (NYSE:EPD), most investors can easily buy a position (if they see an opportunity) or sell a position (if they have concerns or want to take profits). However, with an illiquid MLP, a large investor or manager may have a very strong conviction that the share price will double, but may be unable to profit fully from the analysis underpinning this conviction.

The worksheet below lists every publicly traded energy MLP as of June 30, 2014 [1], with price and volume data [2] as of August 15, 2014. The default worksheet is seeded [3] with a $1 billion portfolio with a 1% allocation to the given MLP, where the trader desires to be 10% of the volume per day. Those numbers are indicated by orange text, indicating that they are customizable. Readers are encouraged to change them to best reflect their preferred (or potential) MLP investment product. The MLPs themselves are listed by dollar volume.

Please note: trading in the open market is not the only way to enter or exit an MLP trade. Large money managers may also be able to participate in PIPEs (Private Investment in Public Equity) to enter a position, or exit a position through a block trade [4] at a discount, which can be much cheaper than exiting a large position in the open market.

We hope this will allow investors to better understand their options.
Worksheet (XLS)Download

Some brief statistics, given the default variables:

  • 34 MLPs have 10 or fewer days to exit.
  • 55 MLPs would take longer than one month [5] to exit.
  • 18 MLPs would take over 100 trading days to exit.
  • 5 MLPs would take longer than one year [6] to exit.

Footnotes:

[1] The newer MLPs are excluded as there is not enough historical trading data for them. These are Hoegh LNG Partners (NYSE:HMLP), Transocean Partners (NYSE:RIGP), VTTI Energy Partners (NYSE:VTTI), and Westlake Chemical Partners (NYSE:WLKP). Affiliated securities are also excluded. These are Cheniere Energy Partners LP Holdings (NYSEMKT:CQH), Enbridge Energy Management (NYSE:EEQ), Kinder Morgan Management (NYSE:KMR), and LinnCo (NASDAQ:LINE). PetroLogistics was acquired on July 15 and is no longer trading. Central Energy Partners (ENGY) is excluded because it consistently fails to trade when markets are open.

[2] Trailing 30-day VWAP price and volume data was used to calculate average daily dollar volume.

[3] These numbers are arbitrary, and were chosen because they are simple multiples of ten. Portfolios range in size; positions within them may be less than 1% or significantly larger. Generally speaking, being a larger percentage of the trading volume in a given period increases the likelihood that buying (selling) activity will drive up (down) the average execution price, making the position less profitable than if a trader were a smaller percentage of the volume.

[4] A block trade is not executed on the open market. It typically involves large amounts of shares exchanged between two or more institutional investors at a privately negotiated price.

[5] A month has 19-23 trading days. Any MLP taking longer than 23 days to exit is included here.

[6] A year is 255 trading days.

Disclosure: © Alerian 2014. All rights reserved. This material is reproduced with the prior consent of Alerian. It is provided as general information only and should not be taken as investment advice. Employees of Alerian are prohibited from owning individual MLPs. For more information on Alerian and to see our full disclaimer, visit http://www.alerian.com/disclaimers.

Source: By The Numbers: Trading Days To Exit