Weekly Review: Master Limited Partnership CEFs - A 'Lonely Wolf' With 8% Premium

Includes: FEI, NDP, USO
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, Cushing Energy Income Fund (NYSE:SRF) announced its monthly distribution.

The Cushing® Energy Income Fund (formerly known as the Cushing® Royalty & Income Fund) (SRF) declared a distribution for September 2018 of $0.04 per common share. The Fund's distribution will be payable on September 28, 2018 to shareholders of record on September 17, 2018. The ex-date for the Fund's distribution is September 14, 2018.

The Benchmark

Over the past week, the ALPS Alerian MLP ETF (AMLP) has finished in red territory. On a weekly basis, the index has lost $0.03. The week was calm, without any great volatility in the sector.

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

The US Oil Fund (USO) had a tough week, as we can observe on the chart beneath. Since the start of the week, USO started dropping rapidly. On Thursday, the ETF hit its low of $14.10 per share. However, the fund did not close on its lowest. Things started looking really 'ugly' until the bull stepped in on the last trading day of the week. On Friday, the ETF closed at a price of $14.28 per share. On a weekly basis, the index dropped with $0.57.

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

1. Highest Z-Score

Source: CEFConnect.com

Still, there are no changes in the leading position. The Tortoise Energy Independence Fund (NDP) is once again the only overvalued fund. Its Z-score is 2.20, same as the previous week. The average Z-score in the sector is -1.72. This result tells us that the sector as a whole is undervalued.

2. Lowest Z-Score

Source: CEFConnect.com

Judging by this metric all of the funds above can be considered as "Buy" candidates. For a few weeks now there has not been any major changes in the ranking between the different closed-end funds. The First Trust MLP and Energy Income Fund (FEI) has been on top of the chart for a few weeks now.

3. 5-year Annualized Return On NAV

Source: CEFConnect.com

The above sample shows the funds with the highest return on net asset value for the past five years. The average return for this time frame is -4.51%. This is quite unpleasant for the long-term investors in the sector. This metric truly shows the condition of the sector and I think that one does not have to be a genius to see that it is not good.

4. Highest Premium

Source: CEFConnect.com

Things are as usual here. The Tortoise Energy Independence Fund is the only fund currently trading at a premium. It is the only fund with a positive Z-score as well:

Source: CEFConnect.com - NDP Price/NAV 1 Year Chart

Source: barchart.com - NDP Daily Chart (1 year)

NDP hit its support line of $12.00 per share on the last trading day of the week. Keeping in mind the whole situation in the sector and the fact that NDP is the only fund trading at a premium, the investors which own this CEF in their portfolios should be aware that the fund could break through its support.

5. Biggest Discount

Source: CEFConnect.com

All of the funds above have the needed fundamental and statistical quality to be reviewed as potential "Longs". It may be worth it to spend some time on a deeper analysis of them and to consider if they deserve to be part of your portfolio. The average discount/premium of the sector is - 7.63%.

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 a 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 net asset value is what we should look at when we decide to invest.

9. Lowest Distribution Rate

Source: CEFConnect.com


The main reason of these weekly reviews is to track how the sector and its instruments are performing and eventually to find an opportunity where we can make some fresh money. Unfortunately, here in the MLP sector, we observe quite a rapid slip in between the different funds. At some point, this 'free-fall' will stop and there will be many long-term opportunities.

Note: This article was originally published for our subscribers on 9/09/2018 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.