There are 120 MLPs currently trading and 84 investment products designed to give investors access to MLPs and energy infrastructure. Although having a wide array of investment options is generally good for the market, individual investors may feel a bit overwhelmed. The right investment product will depend on many factors specific to the investor. We always urge investors to look under the hood and understand the investment product before allocating any funds.
Liquidity is an important risk measure of how quickly an investor or investment manager can enter or exit a position without dramatically affecting the price. For instance, when investing in a large MLP with a great deal of volume, such as Kinder Morgan Energy Partners (KMP) or Enterprise Products Partners (EPD), most investors can easily buy a position (if they see an opportunity) or sell a position (if they have concerns or want to take profits). However, with an illiquid MLP, a large investor or manager may have a very strong conviction that the share price will double, but may be unable to profit fully from the analysis underpinning this conviction.
The worksheet below lists every publicly traded energy MLP as of June 30, 2014, with price and volume data as of August 15, 2014. The default worksheet is seeded with a $1 billion portfolio with a 1% allocation to the given MLP, where the trader desires to be 10% of the volume per day. Those numbers are indicated by orange text, indicating that they are customizable. Readers are encouraged to change them to best reflect their preferred (or potential) MLP investment product. The MLPs themselves are listed by dollar volume.
Please note: trading in the open market is not the only way to enter or exit an MLP trade. Large money managers may also be able to participate in PIPEs (Private Investment in Public Equity) to enter a position, or exit a position through a block trade at a discount, which can be much cheaper than exiting a large position in the open market.
We hope this will allow investors to better understand their options.
Worksheet (XLS)Download
Some brief statistics, given the default variables:
• 34 MLPs have 10 or fewer days to exit.
• 55 MLPs would take longer than one month to exit.
• 18 MLPs would take over 100 trading days to exit.
• 5 MLPs would take longer than one year to exit.
