M?aster limited partnerships (MLPs) were a hot commodity during 2009 and 2010. But despite the space’s continued positive performance into 2011, MLPs fell below the S&P 500’s gain of 3.2% to end the month of February up 2.7%.

Furthermore, MLPs have seen a pullback going into the first few weeks of March, experiencing one of their worst weeks since May 2010, when Greece’s debt was downgraded. Lipper data indicates that, through the period ended March 9, Sector Energy Funds reported net investor outflows that were markedly lower than the previous week’s inflows.

However, we also witnessed speculative investors increasing their buying and selling activities. According to Thomson Reuter’s proprietary data, institutional buying decreased by nearly 11%, while hedge funds picked up momentum, increasing by 9% on the buy side during the period. While hedge funds made up 44% of the net selling volume, retail investors were closely behind, making up 37% of the total net decreases, compared to 13% of net increases.

According to John Edwards at Morgan Keegan, the downtick is a response to “the ongoing concerns over sovereign debt and how unrest in the Middle East may stall the global economic recovery,” sending the Alerian MLP Index down roughly 6% in March thus far.

The tragic events in Japan caused a massive sell-off across the board. However, the recent weakness seen in the MLPs hasn’t hindered analysts’ outlook for the space. MLPs are attractive long-term investments due to their tax structure, and the non-correlative nature to bonds and stocks make MLPs a diverse option, although tax policy and inflation are threats to the space.

Will MLPs continue to thrive, or is the space going through a cycle? According to Swank Capital’s Management Commentary, the firm “believe(s) the best return prospects in 2011 will likely come from MLPs benefiting from exposure to crude oil and NGL-rich shale plays. MLPs with exposure to these areas should continue to see strong fundamentals.” Swank Capital also states that market risks would involve a “sudden extreme rise in interest rates or a severe shock to the economy, which typically leads to reduced energy demand.” The recent events in Japan, Spain’s sovereign debt and the unrest in the Middle East may represent such shocks, with the potential to threaten energy demand.

Since the start of 2011, there have been a number of equity offerings and IPOs within the subsector and rising demand for petroleum products due to the developments within unconventional plays. This, in turn, increases the demand for midstream infrastructure, so the space will most likely overcome this stint of negativity seen in March to outperform the broader markets once again. Pipeline operators will likely grow earnings and dividends through acquiring other pipelines or growing organically.

According to quarterly earnings reports, Copano Energy has a slew of new initiatives for 2011—notably in the Eagle Ford, Barnett and Woodford shales. Enterprise Products Partners invested $3.1 billion to develop and acquire midstream energy infrastructure during 2010. In February, it purchased a 39-mile carbon-dioxide pipeline from Trinity Pipeline LP. Meanwhile, El Paso Pipeline kicked off the month of March by acquiring an additional 3% interest in Southern Natural Gas Co. for roughly $80 million. So, from this perspective, MLPs should continue to trend higher to outperform the markets.