Though the Alerian Index underperformed the S&P 500 in 2013, there were many master limited partnerships that posted tremendous gains. Today we are focusing on the very best performers, highlighting the five MLPs that posted the greatest total returns in 2013.
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CrossTex Energy (NASDAQ: XTEX) was having a pretty good year, up as much as 40% through October. Then Devon Energy (DVN +1.38%) announced it would spin off its midstream assets into a merger with CrossTex and its general partner. The market was thrilled, and units of XTEX shot up more than 40%. Units are now up more than 100% on the year. CrossTex unit holders will make up 40% of the new MLP once the merger is completed. The new entity should sport improved credit metrics, which is a big step up from CrossTex's current noninvestment grade rating of B+.
Pioneer Southwest Energy Partners is sporting a total return just shy of 100% this year. As with CrossTex, the biggest games came on news-related events. First, in May, Pioneer Natural Resources (PXD +0.00%) submitted a buyout offer. Then in August, the terms of the deal were announced, making PSE a wholly owned subsidiary of Pioneer Natural Resources USA, and exchanging 0.2325 shares of Pioneer for every one unit of Pioneer Southwest. The deal closed on Dec. 17.
American Midstream Partners doesn't see much in the way of average daily trading volume, but that didn't stop the MLP from climbing 116% in 2013. The gatherer and processor spent the year beefing up operations in the Woodbine, and the Eagle Ford Shale, before ending the year on news it had closed on its acquisition of Blackwater Midstream. It was a $60 million deal that gave American Midstream three multiproduct terminal facilities, one each in Louisiana, Georgia, and Maryland.
Hi-Crush Partners (HCLP +0.00%) was on a tear all year long, with its biggest spurts coming on quarterly earnings news, and the announcement in October that it had reached an amicable settlement with Baker Hughes, agreeing to a six-year supply contract with the oilfield-services company. Similar to many energy-company statements toward the end of 2013, Hi-Crush noted in its most recent presentation that the industry was "ripe for consolidation." This remains an MLP to watch headed into 2014.
Emerge Energy Services (NYSE: EMES) posted the biggest gains by far in 2013, as the variable rate MLP climbed more than 173%. Not bad for a company that only went public in May. Emerge delighted investors in the third quarter by increasing its dividend nearly 23% sequentially. This sort of performance is not uncommon for a variable rate MLP -- that is, one that is not required to pay a minimum quarterly distribution. Typically, when the going is good, it is very good, but there are no guarantees for any payout down the line. Though Emerge does have a larger footprint relative to other variable rate MLPs, there is always an added risk that comes with this type of master limited partnership.
Bottom line
Two of the MLPs on this list soared on merger and acquisition news, and one of them has already stopped trading. It is important to recognize what drives above average performance and set realistic goals for your research and eventual investment decisions.
