Five MLPs Hedge Funds Love

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With crude and natural gas close to trading for prices not seen in a decade, many stocks in the MLP sector are beaten up. Because there are always diamonds in the rough for any sector, we decided to make a list of MLPs that the smart money loves. Therefore, in this article, we are going to take a closer look at Energy Transfer Equity LP (NYSE:ETE), Enterprise Products Partners L.P. (NYSE:EPD), Williams Partners LP (NYSE:WPZ), Boardwalk Pipeline Partners, LP (NYSE:BWP), and Plains All American Pipeline, L.P. (NYSE:PAA).

But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).

#5 Plains All American Pipeline, L.P. (NYSE:PAA)

– Number of Hedge Fund Holders (as of September 30): 16
– Total Value of Hedge Fund Holdings (as of September 30): $90.86 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 0.80%

After Kinder Morgan Inc (NYSE:KMI) cut its dividend by 75%, some investors speculate Plains All American Pipeline, L.P. (NYSE:PAA) could reduce its dividend as well. Plains All American has a debt-to-EBITDA ratio of around 5.4x and dividend distribution coverage of below 1x. With large capital expenditures planned, investors are unsure how long management will keep the dividend. Making things worse is ratings agency Moody’s placing the firm’s credit rating on negative outlook on December 7. It’s not all bad news, however, as Plains All American Pipeline still has a Baa2 rating (Baa3 is one level above junk status). Jim Simons’ Renaissance Technologies was among the 16 hedge funds that owned the stock at the end of the third quarter.

#4 Boardwalk Pipeline Partners, LP (NYSE:BWP)

– Number of Hedge Fund Holders (as of September 30): 17
– Total Value of Hedge Fund Holdings (as of September 30): $170.19 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 5.80%

Boardwalk Pipeline Partners, LP (NYSE:BWP) announced $83.6 million in distributable cash flow for the quarter ended September 30, on operating revenues of $294.1 million. Distributable cash flow fell by 47% year-over-year, while the company’s operating revenues rose by 5% as weak energy prices weighed on Boardwalk’s results. Although shares are off by 37.79% year-to-date, 17 funds that we track were long the stock at the end of the third quarter, up from 15 funds a quarter earlier. Alec Litowitz and Ross Laser‘s Magnetar Capital owned 6.67 million shares of Boardwalk at the end of September.

Follow Boardwalk Pipeline Partners Lp (NYSE:BWP)

Follow Plains All American Pipeline Lp (NYSE:PAA)

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