HI there,
Yes, this is a slightly complicated matter. In July, BEP.UN spun out BEPC shares at a rate of 1 share of BEPC for every BEP.UN share (rate of 0.25). Once the transaction closed, BEP.UN's share price would have dropped by ~25%, equivalent to the special distribution that was issued (BEPC). This is much like we see in when the EX-dividend date comes and goes, in a perfect and efficient market, the stock price drops by the dividend amount.
The reason why BEP.UN and BIP.UN created these corporations was to increase interest by institutional and U.S. investors. Increased interest = trading at a premium. The question is, just how much of a premium is deserved? Since the units are economically equivalent and pay the same distribution per share, one would expect the premium to be reasonable. However, it appears that it trades at quite a significant premium. As I am writing this, BEPC is trading at a 23% premium to BEP.UN due to its outperformance (as you pointed out).
In my opinion, this makes no sense and there is a disconnect here. I can't see the premium getting any higher from here. If an investor was to sell BEP.UN and buy BEPC, they would be doing so under the guise that the BEPC shares will rise at a fast pace, thus its a bet that the premium will continue to expand. We are in unique territory here, these two spinoffs are new and most analysts expected a slight premium, but not as big of a premium as we have today. Remember, these units are supposed to be economically equivalent (1 share of BEP.UN = 1 share of BEPC).
In my opinion, it all boils down to taxes on the distribution. As a Canadian, if you hold BEP.UN or BEPC in your RRSP, then there is no tax implications. Inside a TFSA, there may be a slight witholding tax on BEP.UN distribution, but nothing to make a difference. In a non-registered account, you may want to hold BEPC shares as they are eligible dividends which means you can apply the dividend tax credit. For BEP.UN, its a distribution that includes interest, capital gains, dividends from different sources which can get complicated come tax time.
If I held BEP.UN in my RRSP or TFSA I would not sell. Why? I'd expect it to closely track BEPC's performance moving forward, even maybe narrow that premium gap. Furthermore, if I owned 100 shares of BEP.UN today, I'd be receiving $174 in annual income. If i sold, I'd receive 7,111 in cash which would only allow me to buy 81 shares of BEPC. Then, my annual income would be only $149.94.
Bottom line, if investors sell their current BEP.UN holdings to buy BEPC it is because there are favorable tax implications (held in non-registered0, and because they feel the shares will materially outperform BEP.UN moving forward. Since they are economically equivalent, I just can't see this happening in a material way. I could however, be wrong as we are in unprecented territory here.
Mat