Income Growth Advisors, LLC’s Separately Managed Account MLP performance was up 27.81% in April outpacing the Alerian MLP Index (AMZX), which rose 11.04%, by 16.77%. In March our performance was up 10.87% and outpaced the AMZX, which rose 8.32%, by 2.55%. Our April return is the best monthly return in our 15 year history. Our second best monthly performance was 18.08% in January of 2009, the first month of our best yearly performance when we returned 96.89%.
We continue to expect strong returns and outperformance now that the sector bear market has ended. Our performance is not an accident. We have repeatedly written that 2009’s exceptional returns were in response to the dismal 36.09% decline in 2008. Then, like now, there was a spike in MLP yields and when those yields normalized, the sector rallied back ferociously.
• On January 25, noting the extremes in volatility and other market factors, we wrote to clients stating that an important turn in the equity and oil markets began on January 20th.
• We reiterated our belief that a bottom was forming in our monthly MLP report on February 2nd and March 1st. We cited fund inflows into the MLP ETF sector and the return of a positive feedback loop with sector inflows as key catalysts that are helping struggling energy companies and driving higher prices.
• In our April report, we highlighted American Midstream Partners, LP (AMID) and JP Energy Partners, LP(JPEP) and pointed to their private equity sponsorship and support as a compelling fundamental endorsement and powerful incentive to revive these beaten down stocks. “While not without risk, I could see both AMID and JPEP doubling or tripling over the next year or two, as yield spreads return to normal in the MLP market and these two companies execute on their respective business plans.”
For the month of April, American Midstream Partners, LP (AMID) and JP Energy Partners, LP (JPEP) rose 77.0% and 46.7%, respectively.
We continue to see a comparable opportunity to the 2009 experience. With that experience in mind, we again repositioned from some of the old generals to newer growth names with attractive value propositions. While giants like Kinder Morgan, Inc., which cut their distribution by 75% are working to deleverage their balance sheet, we view the country’s largest energy infrastructure play as a market performer growing no faster than the growth rate of second leg of the US shale boom in the next decade. Our objective is to find those companies who offer exceptional yield profiles and growth potential based on their businesses, geographies, and/or financial relationships with their GPs or private equity funders.
We believe with continued normalization in MLP yields, MLPs should rally another 30% this year, based on our 6.5% yield yearend target for the Alerian MLP Index. We believe we will find those higher growth and total return opportunities in this “lower for longer” post OPEC new world order where the US is an oil and natural gas swing producer. We see great opportunities in the top shales with the most attractive production economics like the Permian Basin for oil production and the Utica and Marcellus shales for natural gas.
We encourage people to invest in MLPs through separately managed accounts, where the tax advantages of MLPs is not undermined by the taxes which must be paid by 1940 Act mutual funds and Exchange Traded Funds. This drag on performance of fund investing in MLPs is on the order of 30%. While 1940 Act funds offer simplicity and convenience, the lost return potential is quite material and not justified with investments in excess of $100,000. Through separately managed accounts, our clients enjoy total transparency of our portfolios at Interactive Brokers and US Trust/Bank America/Merrill Lynch.