A record amount of money will be spent this year on energy
infrastructure, such as the proposed controversial Keystone
pipeline, according to a Credit Suisse report released Wednesday.
And that could benefit companies inJPMorgan Alerian MLP Index ETN
), leading them to outperform this year.
Capital spending in 2012 totaled about $30 billion, according
to Credit Suisse. Its analyst believes that record could be
topped in 2013 at $33 billion or even more. After underperforming
the market last year for the first time in 12 years, MLPs could
be a "catch up" trade, in which big money rotates out of winners
and into lower-priced laggards, says Credit Suisse.
"With comprehensive tax reform off the table, we believe that
tax fears will weigh less on MLPs, and while we are still
positive on the oily infrastructure MLP trade, this trade is
getting a bit crowded," Credit Suisse analysts wrote. "With that
in mind, we think that some of the smaller-cap names and/or
higher beta names such as MLP refiners or one-off newer issues
may be positioned to outperform in 2013."
They rated "outperform" on five companies:Crosstex Energy (
),Crosstex Energy LP (
),Exterran Partners LP (
),QR Energy LP (
) and Hi-Crush Partners LP (HCLP).
In warning about risks of the trade, Credit Suisse wrote: "But
weak NGL (natural gas liquids) prices, massive equity issuance
($24.5 billion and 75 issues, not counting at-the-market
programs), a steep change in capital spending, and worries over
possible tax law changes weighed on the sector."
Only Exterran and QR are included in the most widely traded
:JPMorgan Alerian MLP Index ETN (
) andALPS Alerian MLP ETN (AMLP).
AMJ returned 3.89% last year vs. 15.99% for the SPDR S&P
500 (SPY). But the largest exchange traded product tracking MLPs
has been outperforming recently. So far this week, AMJ added
1.09%, while the SPY shed 0.29%. AMJ gained 5.36% the past month
vs. 2.93% for SPY.
Structured as an exchange traded note, AMJ is actually a debt
note that's designed to produce returns of the underlying index
without actually holding the stocks. Its value could be affected
by JPMorgan's credit rating and ability to pay its debts. AMJ
Above The Line
AMJ broke above both the 50- and 200-day moving averages last
week, confirming a fresh uptrend and trading near a new 52-week
high. But it still has a rather weak IBD Relative Strength Rating
of 42, indicating its price action lags 57% of the market.
But its strong B+ Accumulation-Distribution Rating, on an
A-to-E scale, shows institutions are heavily buying more shares
AMLP returned 1.92% in 2012, 0.31% so far this week and 3.26%
the past month.
It tracks the same index as AMJ, but actually holds the
underlying stocks. Its performance lags AMJ because it's
structured as a corporation that pays an income tax, which cuts
into the fund's returns.
It was designed this way because legally MLPs can only account
for 25% of assets of a mutual fund or ETF under the Investment
Company Act of 1940. AMLP yields 6.24%. AMLP has a chart pattern
similar to AMJ's but a weaker 32 RS and B- Acc-Dis Ratings