Weekly Review: Master Limited Partnership CEFs - Fund At A 16.86% Discount Bounced Back From Its Lows

About: Salient Midstream&MLP Fund (SMM), Includes: CTR, FEN, NDP
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 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 closed-end fund declared their regular distributions:

  • The Cushing® MLP & Infrastructure Total Return Fund (formerly known as The Cushing® MLP Total Return Fund) (SRV) declared a distribution for November 2018 of $0.0903 per common share. The Fund's distribution will be payable on November 30, 2018 to shareholders of record on November 16, 2018. The ex-date for the Fund's distribution is November 15, 2018.
  • The Cushing® Energy Income Fund (formerly known as the Cushing® Royalty & Income Fund) (SRF) declared a distribution for November 2018 of $0.04 per common share. The Fund's distribution will be payable on November 30, 2018 to shareholders of record on November 16, 2018. The ex-date for the Fund's distribution is November 15, 2018.
  • Duff & Phelps Select Energy MLP Fund Inc. (DSE) announced a quarterly distribution of $0.15 per share, payable on November 20, 2018, to shareholders of record as of November 13, 2018 (ex-date November 9, 2018).

The Benchmark

Over the past week, the Alerian MLP ETF (AMLP) has entered in a sideways trend as we can see on the chart beneath. On Monday the ETF hit a new low over this time frame. Its low point was $9.59 per share, but by the end of the day the index closed higher at a price of $9.74. On Tuesday, AMLP recovered its negative movement from the past day. The rest of the days were calm. On a weekly basis the ETF lost $0.09 per share.

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

After the US Oil Fund (USO) broke through all its support lines, the ETF closed at its lowest for the week. It is not hard to see that USO is at a bearish trend from which currently it cannot escape. The index closed the week in negative territory at a price of $13.31 per share. On a weekly basis that is a drop of $0.94 per share.

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

1. Highest Z-Score

Source: CEFConnect.com

There is still no change in the leading position from the above table. Once again the gold medalist of the group is the Tortoise Energy Independence Fund (NDP).Currently, the CEF has a positive Z-score of 1.00 which from a statistical perspective evaluates NDP as overpriced. What we should notice is that currently NDP is trading at a higher premium compared to last week.

The Cushing MLP & Infrastructure TR Fund (SRV) today's score is -1.00. If you remember last time the fund had a positive Z-score of 0.10. Its discount has widened a lot as well since our last article.

2. Lowest Z-Score

Source: CEFConnect.com

The Clear Bridge Energy MLP TR Fund (CTR) is still our leader in the frames of this metric. Currently, the closed-end fund has a negative Z-score of -2.70 and a wide discount of -10.86%. Both metrics have dropped since our last review.

Another quite undervalued fund, judging by this metric is the First Trust Energy Income & Growth Fund (FEN). Here again we have the same negative Z-score of -2.70. This week, FEN's score is almost a point lower as in our previous review its Z-score was -1.90. Here is how the fund finished the week:

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

3. 5-year Annualized Return On NAV

Source: CEFConnect.com

The aim of the above ranking is to show us the closed-end funds with the higher yields based on the net asset value. Combination of the return with the other metrics that we have is a foundation of our research for potential "long" candidates. Clearly, we do not have a positive result from any of the funds.

4. Highest Premium

Source: CEFConnect.com

Although there are couple of funds which trade currently at a premium, the positive NAV/Price spread is still mirage in the sector.

As usual the Tortoise Energy Independence Fund (NDP) is the most overvalued fund of all. Today its premium is even higher since last time. Today the CEF is trading at a premium of 4.79%. That is a 2% gain compared to its previous result.

The newcomer in the premium club - Center Coast MLP & Infrastructure Fund (CEN) - is still at a tiny premium of 0.12%. If we exclude NDP, CEN is the only MLP fund that has been trading at a premium lately. Below we can track how has been CEN trading compared to its peers in the sector: Source: cefdata.com

5. Biggest Discount

Source: CEFConnect.com

There are no major changes in the leading positions in the table above. The lowest yielder in the sector is the most undervalued as well. The Cushing Energy Income Fund (SRF) is trading at a wide discount of -17.09%: Source: cefdata.com Source: cefdata.com

The Salient Midstream & MLP Fund (SMM) has widened its NAV/Price spread even more now. The fund has headed to its all time lows:

Source: ycharts.com

Source: ycharts.com

SMM is currently trading at a discount -16.86%. It also has a negative Z-score of -2.30. Below on the chart we can see how the fund closed the week after reaching a new low in these time frames: Source: barchart.com - SMM Daily Chart (6 months)

6. Highest Effective Leverage

Source: CEFConnect.com

Closed-end funds are no stranger to leverage, and investors interested in this kind of products should be familiar with where their holdings stand in this regard. Do not underestimate the effect of the leverage, and be sure it is included in your analysis. The average effective leverage of the sector is 28.50%.

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

The table above shows the funds with the highest distribution rate on price. Additionally, we have included here the distribution rate based on the net asset value. Most of the market participants find the second metric to be more important.

9. Lowest 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.


The main reason for 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 between the different funds.

Note: This article was originally published on Nov. 4, 2018, and some figures and charts might 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.