Bigger they are...?
Growth At A Reasonable Price, Dividend Investing
Seeking Alpha Analyst Since 2009
I serve as Portfolio Manager on the Listed Infrastructure Team at CBRE Clarion Securities, a global asset management firm based in Radnor, PA. My primary focus is on investing in Midstream companies, including Master Limited Partnerships (MLPs), as well as transportation companies (rails, airports) for larger infrastructure investment team.
EPD is the largest and most active MLP of them all, with a market cap of more than $35 billion and average daily liquidity of around $63mm. Compare that to the most thinly traded midstream MLP, which is either HEP on number of shares (just 33,700 a day) or PNG on daily trading value (approximately $1.3mm). So, EPD trades around 48 times as many shares and around 47 times as much value on a daily basis than the most thinly traded names.
Because of its liquidity, EPD can be owned by a much larger universe of institutions than PNG or HEP; it’s much easier to build a position of size in EPD. I’m not sure where I read or heard this, but for some reason I had it in my head that larger MLPs with more liquidity tended to outperform in periods of high volatility. This myth may have been a direct result of the 2008 performance of EPD’s nemesis KMP, which was down only 15% (only 8% including the distributions).
In the chart below I compare how the top 10 most active midstream MLPs fared in from peak to trough last month compared with the least active midstream MLPs. Additionally, I was curious how those same MLPs did in 2008. In the shorter time period, for the most part, the active names performed on par or slightly worse than the more thinly traded ones. Back in 2008, however, KMP was more the exception than the rule it appears.
I guess the argument could be made that the most liquid MLPs are the easiest to sell in a down turn...not sure any of this proves anything, but it intrigued me.
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