So much of what happens in finance over the short run is a matter of luck. Over the short run the lucky guess, the right roll of the dice, can look a whole lot better than any advantage eked out with skill.

Kindly keep this in mind as we report another very lucky six months for the newsletter, on the heels of an incredibly fortunate 2013.

Last year, our picks returned 39%, way ahead of the 27% for the Alerian MLP Total Return Index. We also recommended timely sells on the sector’s two biggest bombs of the last year.

Could we get any luckier that that? Yes, we could. In the first six months of 2014, the Alerian returned a strong 16.3% including its members’ distributions, well ahead of energy stocks that in turn trounced the S&P 500.

Meanwhile, the nine best buys we recommended in March returned a crazy-lucky 37.4% on average. That’s 37% from the start of January to the end of June, not for the last 12 months or annualized.

How did that happen? Well, top pick Enterprise Products Partners (NYSE: EPD) returned 20% in six months — and that was the worst performance by any Best Buy held for the entire six-month period. Meanwhile, #7 Best Buy EQT Midstream (NYSE: EQM) delivered a 67% gain, boosted by investors’ growing yen for growth and its excellent prospects in the heart of the booming Marcellus shale.

Also, #6 Best Buy Targa Resources (NYSE: TRGP) soared 57%, aided by an abortive buyout bid from #4 Best Buy Energy Transfer Equity (NYSE: ETE), whose own 46% first-half return was based on the astute deals it’s made in recent years.

#5 Best Buy Williams (NYSE: WMB) delivered a  53% payoff after gaining full ownership and operational control of another fast-growing Northeast gas gatherer. Our No. 2 Best Buy, Magellan Midstream Partners (NYSE: MMP) added 35% as the returns from transporting shale crude consistently exceeded expectations.

Here’s the full tally for the Best Buys:

What’s especially notable here is that seven of these nine Best Buys, including the top three performers, were recommendations made in the last year. No matter how much luck we had identifying these, there’s no question that they’ve proved hugely rewarding.

We’re partial to the old proverb that the harder you work the luckier you get, and have worked accordingly. The quick payoff tastes sweet, and though it’s led to some questions about how much of these gains to cash in, that is the proverbial high-quality problem.

How did the overall portfolio do? Pretty darn well. The positions recommended here for any portion of the first half of the year returned 18% on average. Adjusted for the holding period, they’ve returned nearly 21%, just like average for all the positions recommended since Jan. 1.

New positions recommended during the first half averaged a return of 13.5% over an average holding period of just over three months. Notably, Boardwalk Pipeline Partners (NYSE: BWP) one of the two disasters we dodged in 2013, returned 32% between our re-entry on April 4 and June 30. We recommended GasLog Partners (NYSE: GLOP) on May 9 and it  returned 37% by June 30, though that gain has since been much reduced by profit-taking.

In keeping with recent investor preferences the Growth Portfolio outperformed its Conservative and Aggressive counterparts. Recommendations featured in the Growth Portfolio for the entire first half of the year averaged a total return of 27.1%, though that fell to 22.9% when including the abbreviated returns from the five Growth picks added this year.


The gains by Targa, Williams, DCP Midstream Partners (NYSE: DPM) and Regency Energy Partners (NYSE: RGP) underscored the growing attraction of gas gathering as the pre-requisite for the higher value-added processing, fractionation and liquids exports profits. Crestwood Midstream Partners’ (NYSE: CMLP) s decline is a reminder that gas storage has been a much harder sell in a time of unusually low gas inventories.

The seven stocks in the Conservative Portfolio also delivered superior returns, averaging more than 23% over the first half of the year.


Kinder Morgan Energy Partners (NYSE: KMP) was held back by questions about its growth pace and the heavy toll of the incentives it pays to general partner Kinder Morgan (NYSE: KMI), though sentiment on the name improved dramatically in May and June. Oiltanking Partners (NYSE: OILT) continued to deliver rapid gains in response to strong demand for Gulf Coast crude storage as production of domestic crude from shale outpaced refiners’ capacity to process it.

Despite the quick windfalls from GasLog Partners and Boardwalk, the Aggressive Portfolio significantly lagged overall portfolio results, dragged down by double-digit declines in Oaktree Capital Management (NYSE: OAK), OCI Partners (NYSE: OCIP) and Western Refining (NYSE: WNR). OCIP is gone, while Oaktree and Western are attractive long-term value plays based on the quality of their businesses and their cash flow.

As home to the most volatile and high-risk recommendations, the Aggressive Portfolio is also the likeliest to breed losers. Still, it also identified enough big winners to produce a first-half return of 8.4% for the average position, and 7.1% for those held for the full six months.

This portfolio performance evaluation also wouldn’t be complete without a mea culpa for the premature skepticism I shared about MLPs as a group at the outset of the year, when it seemed like growing enthusiasm for tax deferred yield had run as high and as fast as it could, and might soon founder on higher interest rates and increasing supply of energy assets seeking the tax advantages of MLPs.

Bull markets tend to run much farther than almost anyone expects, and this one is the granddaddy of them all, goring doubters since the mid-1990s with nary a bad year other than 2008. The valuation concerns are real and the group’s short-term posture overextended.

But the huge outperformance of our Best Buys is real too, suggesting we’re on the right track in focusing on the most strategic assets and the entities that control them rather than on yields or the easily manipulated distribution growth metrics.

The key to a successful second half will be more of the hard work that’s helped our fortunes over the last year, and a willingness to protect big gains by taking profits. And we expect to find more buying opportunities as well. Let’s get lucky again together.