Of the 100-plus master limited partnerships on the market in 2013, only 18 of them posted negative returns on the year. The five MLPs we are looking at today were at the bottom of that relatively small pile, duking it out for the title of the Year's Worst Performer.
RNF Total Return Price data by YCharts
Three of the five worst-performing MLPs of 2013 are variable rate MLPs victimized by the volatility of the nitrogen-fertilizer market. Terra Nitrogen (NYSE: TNH), CVR Partners (UAN 0.96%), and Rentech Nitrogen Partners (NYSE: RNF) are down more than 29%, 32%, and 50%, respectively, this year.
Some investors view the slump as an opportunity to buy, citing a perfect storm of higher natural-gas prices and lower sales volumes due to planned turnarounds as the reason for the industry's pain. Though CVR Partners and Rentech Nitrogen are relatively new to the Street, Terra Nitrogen units do have a long history that trends upward. That might be enough to reassure investors after a lousy year, but of course past results are not indicative of future returns.
Eagle Rock Energy Partners (NASDAQ: EROC) had a terrible year, but the partnership significantly brightened its future outlook in the waning days of 2013 when it announced it would sell the midstream portion of its business to Regency Energy Partners for around $1.3 billion.
The deal does not guarantee future success for Eagle Rock, but it does lighten its debt load and puts it in a better position to thrive than it was a month ago. Eagle Rock units had fallen as much as 40% this year on weak results and a third-quarter-distribution cut. The partnership will likely close out 2013 down around 25%.
EV Energy Partners (NASDAQ: EVEP) is a high-yielding upstream MLP with the majority of its assets in the Appalachian Basin as well as Texas and Oklahoma. In fact, 70% of the partnership's reserves are located in the Barnett Shale in Texas and the Utica Shale in Appalachia. Units of EVEP have declined since January, popping momentarily in August before falling again, settling in for a year-to-date loss of 36%.
Bottom line
A bad year for any given MLP can create a buying opportunity, but it can also be the beginning of a terrible pattern. Ultimately, investors must take a look at what is punishing a particular stock. Is it ineptitude at the management level, or outside market forces that are driving your stock down? There are more MLPs on the market than ever before, but they are not all created equal. Investors must choose wisely.
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