Weekly Review Of Master Limited Partnership CEFs: NDP Is Statistically Overvalued And Trading At A 25% Premium

Includes: CEN, KYN, MIE, NDP
by: Arbitrage Trader

The leading benchmarks of the sector remained stable during the week.

We have two CEFs trading at high premiums.

Results are higher this week.


It seems that the past week was calm for the sector and the instruments traded quite stable. Many of the Z-scores that we discussed in our last article are much higher today and even positive. The average Z-score is higher today, the average discount as well. The leading benchmarks traded quite stable and it looks like they are searching for an upside movement. There are a couple of overvalued closed-end funds which deserve our attention as well.

The News

Over the past week, several closed-end funds declared their regular distributions:

Source: finance.yahoo.com

  • The Cushing Energy Income Fund (NYSE:SRF) (formerly known as the Cushing Royalty & Income Fund) declared a distribution for June 2019 of $0.04 per common share. The Fund's distribution will be payable on June 28, 2019, to shareholders of record on June 14, 2019. The ex-date for the Fund's distribution is June 13, 2019.
  • The Cushing MLP & Infrastructure Total Return Fund (NYSE:SRV) (formerly known as The Cushing MLP Total Return Fund) declared a distribution for June 2019 of $0.0903 per common share. The Fund's distribution will be payable on June 28, 2019, to shareholders of record on June 14, 2019. The ex-date for the Fund's distribution is June 13, 2019.

The Benchmark

The ALPS Alerian MLP ETF (AMLP) finished the week in positive territory. The trading volume was around its average volume, and as we see, there was a lack of volatility. On Monday, the ETF opened higher and it ranged until the end of the trading week. On Friday, AMLP closed at a price of $9.75 per share. On a weekly basis, this is a gain of $0.11 per share.

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

The US Oil Fund (USO) had a more interesting week. On the first trading day of the week, USO opened lower and continued falling to a weekly low of $10.53 per share. The following couple of days, the 'bulls' came in and pushed the oil ETF to a higher close of $11.23 per share. On a weekly basis, the fund gained $0.13 per share.

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

1. Highest Z-Score

Source: CEFConnect.com

During the past week, there were not any major changes in the leading positions. The Tortoise Energy Independence Fund (NDP) is still the undisputed leader of the chart. Currently, NDP has a Z-score of 2.40.

The second fund today which has a score above 1.50 is the Cohen & Steers MLP Income and Energy Opportunity Fund (MIE). The fund is with a 1.70 result which makes it the second most overvalued CEF in the group. Of course, this is only in the frames of statistics. As we can see, the MLP fund is trading at a wide discount which rings a bell in my head that it might not be the best "Sell" candidate.

The rest of the above funds have Z-score below 1.00; hence, we cannot determine them as statistically overvalued. Let us continue with the most undervalued CEFs in the sector.

2. Lowest Z-Score

Source: CEFConnect.com

Compared to last week, the results are much higher today.

The Goldman Sachs MLP and Energy Renaissance Fund (GER) has one of the lowest scores in the MLP sector. This makes it one of the most undervalued CEFs among the others in the group. As we move our sight on the right, we would see that the fund trades at a wide discount. When these two criteria are combined, we can say that the fund is a potential "Buy" candidate. Of course, we are only scratching the surface here. A deeper research is always needed.

The Kayne Anderson MLP/Midstream Investment Company Fund (KYN) has a negative score of -1.50 as well. The NAV/Price spread is quite wide as well. The past week was positive for KYN as we can see on the chart below:

Source: barchart.com - KYN Daily Chart (6 months)

The closed-end fund is currently hovering around its support level.

The average Z-score in the sector is -0.36.

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 higher yields based on net asset value. A 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.

The average return on NAV in this time frame is -9.79%.

4. Highest Premium

Source: CEFConnect.com

The undisputed leader in this frame is once again the Tortoise Energy Independence Fund. What a surprise, right? Today, the NAV/Price spread is almost the same as our previous review. However, the statistical evaluation today is way different than last time. From a negative Z-score of -1.50, NDP has jumped to a result of 2.40. We now have statistically overvalued CEF trading at a high premium with a falling net asset value. Beautiful! I would definitely consider NDP as a "Sell" candidate:

Source: barchart.com - NDP Daily Chart (6 months)

NDP compared to its peer group:

Source: cefdata.com

We have not seen such a spread between the group ever.

The second closed-end fund which is trading at a premium is the Center Coast MLP & Infrastructure Fund (CEN). Currently, CEN trades at a 1.64% premium:

Source: CEFConnect.com

Compared to its annual levels, at the moment, CEN is a little bit overvalued. Below, we can see that this fund has a tradition in keeping the spread tight:

Source: CEFConnect.com

5.Biggest Discount

Source: CEFConnect.com

The fund which grabbed my attention the most today is the Kayne Anderson MLP/Midstream Investment Company Fund. The NAV/Price spread has widened a lot lately:

Source: CEFConnect.com

And, it is way above the average discount in the sector:

Source: CEFConnect.com

KYN is the most undervalued CEF statistically as well. The fund also distributes a dividend of $0.12 per share in less than 10 days:

Source: CEFConnect.com

The chart shows us that currently, the fund is trying to bounce back. We already showed that KYN is trading around its support line:

Source: barchart.com - KYN Daily Chart (6 months)

All these signals I personally read as "Buy" signals. Of course, there are other things to be considered as well, but at this point, KYN seems to me as probable "Buy" candidate. The average discount in the sector is -7.47%.

6.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.

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

Most of the fixed-income investors are drawn to closed-end funds because of their relatively high distribution rates. However, for me, the distribution rate of a fund is not the most important metric to look at. For long-term investors, a CEF's total return is far more important than its distribution rate. Often, income-seeking investors become enamored with a CEF's distribution rate. They lose sight of the share price return.

9. Lowest Distribution Rate

Source: CEFConnect.com

The average yield on price for the sector is 11.45% and the average yield on net asset value is 8.45%.


Compared to our previous article, today things look much more optimistic. However, I do not see strong "Buy" signals yet. These brief reviews are quite helpful to stay in touch with the statistical evaluations, spreads, prices, and benchmarks movements. At the moment, it is hard to find potential trades. One potential "Sell" candidate for me is NDP because of its statistical evaluation, falling net asset value and, therefore, widening spread.

Note: This article was originally published on June 9, 2019, 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.