Portfolio Update

• Marathon Petroleum (NYSE: MPC) added to Aggressive Portfolio. Buy below $70
• EuroNav (NYSE: EURN) added to Aggressive Portfolio. Buy below $18
• DHT Holdings (NYSE: DHT) added to Aggressive Portfolio. Buy below $10
• Teekay Tankers (NYSE: TNK) position halved in Aggressive Portfolio.

It’s been a terrible first half of the year for MLPs, in fact the worst first half in at least two decades. We’ve certainly felt the pain in many of our favorite midstream names, especially those exposed to the reversal of the investment inflows seen when the sector was near its peak last summer.

But while the half dozen of our Conservative recommendations performed as badly as you would expect given this backdrop, the rest of the portfolio produced enough big winners so that the whole actually saw a positive return.

Many of the more resilient picks were either in the downstream sector benefiting from the lower energy prices or else were general partners exploiting investors’ need for yield to rent their capital on the cheap, while building long-term value. In Focus has a detailed breakdown of our first-half performance.

The same willingness to offer a modest yield while retaining the bulk of long-term value distinguishes Marathon Petroleum (NYSE: MPC), the more so after it engineered a buyout of MarkWest Energy Partners (NYSE: MWE) by its logistics MLP affiliate. Earlier in the week we noted how unattractive this deal looks for MarkWest, and recommended halving that position. This issue’s New Buys examines the deal from Marathon’s perspective and finds a lot to like in that long-term winner.

Our foray into tankers last December helped the portfolio’s overall performance quite a bit, and with charter rates staying strong we’re increasing exposure to this sector with two new picks. Please see Sector Spotlight for the details.

Before the end of the month, MLP Profits will publish a new Best Buys list, as part of an early peak into the August issue. Also coming soon will be a detailed Portfolio Update reviewing the latest crop of quarterly earnings. The early line is that low energy prices will take their toll on the bottom lines but perhaps not to extent already priced by skittish investors.

The midstream sector’s long-term prospects remain robust, because it’s hard to see U.S. energy output falling appreciably and still satisfying  growing global demand. Barring a global recession (unlikely but not impossible) any meaningful letup in North American shale output seems likely to lead to higher prices in short order.

In any case, either the shale producers or their creditors will still need to drill and produce in order to recoup the hundreds of billions invested in the shale rights and infrastructure in recent years. So long as that remains the case the midstream should do fine – and perhaps better than that.