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Large investors held tight in Q1 as midstream energy weathered low oil prices

Institutions largely maintained their positions in U.S. midstream energy companies in the first quarter as the sector continued to stabilize despite lagging crude oil prices, S&P Global Market Intelligence data shows.

Even though oil prices remained low throughout most of the quarter, the top 10 institutional owners in the sector increased their midstream energy holdings by 3.2% since the start of the year.

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Big asset managers BlackRock Inc. and Vanguard Group Inc. showed particular confidence in Williams Cos. Inc. The two together bought 21 million shares in the midstream giant. Investment firm Franklin Resources Inc., meanwhile, increased its position in Williams by over 200%. During a quarter that represented a step back toward the steady growth the sector had been accustomed to before a commodity price downturn in 2015, the Alerian Master Limited Partnership index was up and down. A bellwether for the midstream sector, the basket of the largest energy master limited partnerships saw a price return gain of just 1.6% in the first quarter.

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It was a different story for activist investor Keith Meister of Corvex Management LP, who sold his remaining 14 million-share Williams stake in the first quarter. After threatening a proxy fight if Williams did not add "world class" executives to its board, Meister stood down in September 2016 after Williams named new directors. But he kept selling his Williams holdings. After nearly doubling his stake during the fourth quarter of 2016, hedge fund manager Stephen Mandel's Lone Pine Capital LLC exited Williams during the first quarter, as well.

Most of the largest oil and natural gas transporters in North America reported solid growth in adjusted EBITDA and distributable cash flow for the first quarter, two key metrics used by the midstream finance community to look at the cash those companies are generating and what they are able to pay to their unit holders. Tortoise Capital Advisors LLC Managing Director Rob Thummel said that while higher oil prices would have produced better earnings in general, dividend growth and distribution growth still met predictions.

"You're on a pace to get 6%, 7% dividend growth from these companies, which frankly we think is pretty strong," he said in an interview.

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