Trading Days to Exit: The Sequel

12/05/16 | Karyl Patredis

In August of 2014, we looked at liquidity of MLPs. The point of the original post was to help investors understand how quickly a position could be entered or exited without dramatically affecting the price. We received feedback that this information was helpful, so today I’m posting an updated spreadsheet containing data as of November 30, 2016.

There are currently 112 MLPs trading and 86 investment products designed to give investors access to MLPs and energy infrastructure. While having a wide array of investment options is generally good for the market, it may leave you feeling like you’re in the soup aisle at the grocery store. With so many options, additional information is critical to making a good decision. One reason why it’s important to look at how liquid certain MLPs are is that if you own a fund that has illiquid names, and that fund decides to sell those units, it could take several days to get out of the position, driving the price (and profits) down in the process. Sacrificing pricing for liquidity is generally not a good thing for you, the investor. We strongly encourage investors to “look under the hood” and by this we specifically mean learning which MLPs your fund owns and understanding which names are liquid or illiquid.

Liquidity has been an important metric during the recent energy cycle as some investors rushed to sell out of their positions. Additionally, liquidity should be a consideration for those choosing to short an MLP’s units. Having the ability to cover the short in an efficient manner is crucial and worth investigating before initiating a short position.

The worksheet below contains a list of the energy MLP universe with price and volume data. The default worksheet is seeded with a $1 billion portfolio with a 1% allocation to the given MLP, where the trader activity is capped at 10% of the MLP volume per day. In other words, how long would it take for a trader to enter/exit a $10 million position in an MLP, without representing more than 10% of the MLP’s daily trading volume? Those numbers are indicated by red text, signaling that they are customizable. The MLPs themselves are listed by dollar volume.

The Alerian MLP Index (AMZ) methodology guide requires constituents to have a median daily trading volume of at least $2.5 million for the six-month period preceding the data analysis date. The given spreadsheet only represents one month and isn’t exactly the value that the methodology guide looks at. As a general guide however, you can see that using the worksheet’s trading volume values, only 60 of the 112 MLPs would meet the liquidity requirement.


The top five most liquid MLPs as of November 30, 2016 (based on trailing 30 trading days) are:

  1. Enterprise Products Partners (EPD)
  2. Energy Transfer Partners (ETP)
  3. Energy Transfer Equity (ETE)
  4. Plains All American Pipeline (PAA)
  5. MPLX (MPLX)

Finally, the table below gives us a quick look at the stats for the current time period compared with those from 2014.