Author: Andrew Fletcher, Fletcher Wealth Management

Covestor model: Oil and Gas MLPs

All through September 2011, the overall market searched for a bottom.  Volatility was high, but equities were able to establish a recognizable support level.  However, at month’s end, the S&P 500 had lost 7.18% of its value.  Fortunately, there were a few safer havens available, such as oil and gas master limited partnerships; the Alerian MLP index lost 4.15% in September.  With only a 3.62% loss (according to Covestor’s calculations), the Oil and Gas MLPs model provided some cushion in a turbulent market, while outperforming its benchmark.

Trades
With the price drop in the overall market and a continually weakening dollar, several master limited partnerships became more attractively priced. However, with such uncertainty in the air, we were still hesitant to make any purchases during the month.  As the overall market continues to stabilize, we will look at making some additional purchases in the coming months.

No holdings met their target sell prices during September.

Update on some holdings
A subsidiary of El Paso Pipeline Partners, L.P. (EPB) is planning on issuing $500 million of senior debt to lessen current outstanding debt and for general partnership purposes.

Enterprise Products Partners L.P. (EPD) announced a joint venture with Enbridge Energy Partners, L.P. and Anadarko Petroleum Corporation to build a new natural gas liquids pipeline.  An additional joint venture is planned with Enbridge to build an oil pipeline from Cushing, OK to refineries along the Gulf Coast, and be operational by 2013.  EPD also announced that optimization projects at its Neptune cryogenic natural gas processing facility in Louisiana are nearing completion. A merger with Duncan Energy Partners was completed in early September.

Conclusion
We will continue to aim to capitalize on discounts to fair value and net asset value in oil and gas master limited partnerships.

As long as the overall portfolio maintains, or exceeds, the performance of its benchmark, we do not worry when quality holdings drop in price, as that helps move companies on our watch list onto to the buy list. With the structure of a MLP, we can afford to be patient, because we continue to receive distributions regardless of the stock price. When a rebound does occur, we expect a stronger positive response from our individual holdings than from the index itself.