Weekly Review: Master Limited Partnership CEFs

by: Arbitrage Trader

Review of where Master Limited Partnership closed-end funds and their benchmarks ended last week.

Recap of news related to the group, if any.

Comparison of the funds using several important metrics.


Over the past few months, most of you have noticed our increased activity in closed-end funds as the inflow of volatility finally shook them up and created various arbitrage, and directional, opportunities for active traders such as us.

Master Limited Partnerships, or MLPs, have had a couple of rough years, and we have been exposing ourselves to them through the related CEFs every now and then, as avid followers would have noticed from our articles. This group has now become part of our Weekly Reviews, so we can keep an eye on them in a more consistent manner and share our thoughts with you.

The News

Source: Author's Software

Over the past week, several funds have announced their monthly distributions.

  • The Cushing Energy Income Fund (formerly known as the Cushing Royalty & Income Fund) (NYSE:SRF) declared a distribution for July 2018 of $0.04 per common share.
  • The Cushing MLP & Infrastructure Total Return Fund (formerly known as The Cushing MLP Total Return Fund) (NYSE:SRV) declared a distribution for July 2018 of $0.0903 per common share

I would also like to show you the funds that have generated negative returns for the period YTD (year to date):

Kayne Anderson MLP Investment Company (NYSE:KYN), Tortoise Energy Infrastructure (NYSE:TYG), and ClearBridge Energy MLP Fund (NYSE:CEM) have all generated negative total returns YTD (year-to-date). They’re the top MLP closed-end funds by assets under management. The Tortoise MLP Fund (NYSE:NTG) and the First Trust MLP and Energy Income Fund (NYSE:FEI) have also generated negative total returns YTD.

The Benchmark

It is not hard to see that over the past couple of weeks, the ALPS Alerian MLP ETF (AMLP) has entered a sideways trend. It also seems that the volatility of the fund has faded out.

Source: Barchart.com - AMLP Daily Chart (6 months)

The U.S. Oil Fund (USO) from the other side has hit a new all-time high on the third day of the week. On Wednesday, the ETF reached a price of $15.25 per share, but unfortunately closed on its low point for the day.

Source: Barchart.com - USO Daily Chart (6 months)

That said, let's proceed with a brief examination of how the closed-end funds, which invest in MLPs, ended last week.

1. Highest Z-Score

Source: CEFConnect.com

Our leader from last week - Nuveen All Cap Energy MLP Opportunities Fund (JMLP) is dead and gone from the positive territory. On the top of the table today, we find the Kayne Anderson Energy Development Company Fund (KED). Its Z-score is 1.70 which evaluates the fund as overpriced from a statistical perspective.

2. Lowest Z-Score

Source: CEFConnect.com

Basically, the sector is trading at depressed levels and it is undervalued all in all. So, it is quite logical to find so many underpriced funds compared to these who are in positive territory. However, the best time to add instruments to our portfolio is when something is undervalued.

The 'gold medalist' this week is the Cushing Energy Income Fund with a score of -3.20. On the following place is the Salient Midstream & MLP Fund (SMM) with a Z-score of -2.70. These two funds have been replacing one another from the leader's place for a while now.

3. 5-year Annualized Return On NAV

Source: CEFConnect.com

The return on the net asset value might be the one of the most important things to consider when you look for a good trade opportunity. Today, the only fund which we find in a positive territory is the First Trust Energy Income & Growth Fund (FEN).

4. Highest Premium

Source: CEFConnect.com

The Tortoise Energy Independence Fund (NDP) is the most overpriced closed-end fund of all in the group. It is trading above its net asset value of a 3.07% premium. It is followed by the Kayne Anderson MLP Fund which is at a premium of 2.55%.

5. Biggest Discount

Source: CEFConnect.com

The Cushing Energy Income Fund, as we already discussed, is the most undervalued fund of all. The CEF has got the lowest Z-score and the biggest discount among the other funds in the group. Despite that the discount is quite big and the fund is trading far below its net asset value, it is not unusual for the fund to be found at these levels. I have already shown you that SRF has been undervalued for years now.

The second fund in the table that we find is SMM with a wide discount spread of -12.14%. As SRF, the story here is almost the same. The fund has been for quite a long time in the negative territory if we look at it from a historical side. Here is a 5-year chart of how the price and the NAV have behaved over the time frame:

Source: CEFConnect.com

6. Highest Effective Leverage

Source: CEFConnect.com

Despite the fact that the sector does not provide positive returns to its investors, it is definitely not the same thing with leverage - as we can see above.

7. Lowest Effective Leverage

Source: CEFConnect.com

Of course, leverage is double-edged sword because it might look great when the company is achieving great results and distributing big returns, but when it starts to sink, things start to get a little bit gloomy I would say. What I mean is that the higher debt brings a bigger risk.

8. Highest Distribution Rate

Source: CEFConnect.com

For me, the distribution rate of a fund is not the most important metric to look at. I think that everybody has a clear vision of what is more important to seek before we enter a trade. Of course, the return on NAV is what we should look at when we decide to invest. After all, we invest to get ROI (return on investment), not to stare at high distribution rates.

9. Lowest Distribution Rate

Source: CEFConnect.com

Above, we can see the CEFs with the lowest distribution rate in the group.


All in all, the CEFs in this sector are still depressed and are not showing their full potential that they have as energy securities. The negative returns and evaluation of the funds have scared out a lot of investors, but we should say that after the end of every week, the sector shows better and better results. And another thing that we should not forget and repeat to ourselves is that, what comes down, must go up.

Note: This article was originally published for our subscribers on 7/08/2018, and some figures and charts may not be entirely up to date.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.