The top 10 was dominated by master limited partnerships (MLPs), with eight entries on the list. Another, Cheniere, owns MLP interests. MLPs issue units rather than shares, but more importantly have distinct tax advantages over corporations. The primary advantage is that MLPs aren’t subject to the corporate income tax. MLPs pass profits directly to unitholders in the form of quarterly distributions. This arrangement avoids the double taxation of corporate dividends.

The only entry on the list that was not an MLP or affiliated with an MLP was the top performer, Westmoreland Coal (NASDAQ: WLB). The coal sector has been battered in recent years, but Westmoreland, the sixth largest North American coal producer, bucked the trend with a total return of 81.6%.

The second leading performer with a total return of 80.7% was Phillips 66 Partners (NYSE: PSXP). This partnership is comprised of midstream assets dropped down from its sponsor, the refiner Phillips 66 (NYSE: PSX) in a 2013 IPO.

In third place was Tallgrass Energy Partners (NYSE: TEP), another 2013 IPO. Tallgrass provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the U.S.

Coming in fourth was Cheniere Energy (NYSE: LNG) which owns 100% of the general partner interest and 47.2% of the limited partner interest in Cheniere Energy Partners (NYSE: CQP). Cheniere Energy and its affiliates are involved in building terminals for the export of liquefied natural gas.

Rounding out the top five was MPLX (NYSE: MPLX), which like PSXP was formed from midstream assets dropped down from its sponsor, the refiner Marathon Petroleum (NYSE: MPC).

The rest of the top 10 consisted of midstream (i.e., pipeline and transportation) MLPs except for Emerge Energy Services (NYSE: EMES). Emerge is primarily a domestic producer and supplier of sand used for hydraulic fracturing in U.S. shale basins. The fracking sand securities have been extremely volatile. Emerge’s entry on the list comes despite a decline of nearly 60% since the end of August.

Overall, 2014 will go down as a poor year for the energy sector, but some segments and stocks will always outperform the broader market averages. In 2014 it was the midstream MLPs, in particular, that performed extremely well.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Energy Transfer’s Latest Shuffle

Financial relationships within a family are often complicated, and even more so when the family is a leading group of master limited partnerships.

Energy Transfer’s latest intramural deal should make them a bit simpler, however, cementing Energy Transfer Equity’s (NYSE: ETE) role as the general partner with the most leverage to the success of its affiliates, and securing near-term distribution growth of its top affiliate Energy Transfer Partners (NYSE: ETP).

In a transaction finalized last week, ETE will acquire 40% of incentive distribution rights (IDRs) in another affiliate, Sunoco Logistics (NYSE: SXL), from ETP, bringing its stake in SXL IDRs to 90%. In exchange for the IDRs, ETE will transfer to ETP $879 million in cash, 30.8 million ETP units and ETE’s 45% stake in a Bakken crude pipeline currently in development.

ETE also gets to reduce its IDR subsidies to ETP by $55 million in 2015 and $30 million in 2016.

We continue to favor both MLPs as two of the strongest plays on the continued development of energy midstream infrastructure in the U.S. Buy ETE below $66 and ETP below $70.