UBS Debuts Wells Fargo MLP ETN (MLPW)

by on November 2, 2010 | ETFs Mentioned:

Continuing its push for dominance in the MLP space, UBS announced this week the launch of the E-TRACS Wells Fargo MLP Index ETN (MLPW). The new exchange-traded note will be linked to the Wells Fargo Master Limited Partnership Index, a float adjusted, capitalization weighted benchmark that seeks to measure the performance of all energy master limited partnerships listed on the NYSE or NASDAQ. The largest weightings in the underlying index include Enterprise Product Partners (13.2%), Kinder Morgan Energy (10%), and Plains All American Pipeline (5.6%). The debt security expires on October 29, 2040.

UBS wasn’t the first to launch an MLP ETN–JPMorgan debuted AMJ in early 2009–but has quickly build the most complete lineup of products offering exposure to the red hot corner of the domestic energy market. MLPW joins exchange-traded products linked to the Alerian MLP Infrastructure Index (MLPI), a monthly 2x leveraged MLP ETN (MLPL), a short monthly MLP ETN (MLPS), and an ETN linked to an index comprised entirely of natural gas infrastructure Master Limited Partnerships (MLPG). The latest addition will be the first UBS offering not linked to an index developed and maintained by Alerian.

Interest in MLPs has surged over the last year, as investors have embraced these securities as potentially valuable sources of yield in the current low rate environment. Due to the tax nuances surrounding these securities, most MLPs make generous distributions–sometimes in excess of 6%. According to the UBS web site, the current annual index yield for MLPW is around 5.8%.

MLPs are generally engaged in the transport and storage of energy commodities in the U.S., owing and operating pipelines that moveĀ  crude oil, natural gas, and other petroleum products. Most MLPs generate fee-based revenues, meaning that the stream of income is tied not to the prices of commodities but rather demand for energy resources. MLPs can also provide relatively low correlation with equity and bond markets [see Guide To MLP ETFs].

Like most MLP products on the market, MLPW is structured as an exchange-traded note, meaning that it is a debt security issued by a financial institution whose return is linked to the performance of an underlying index. In August of this year, ALPS rolled out the first MLP ETF (AMLP), a product that seeks to replicate the performance of the index by purchasing the shares. The launch of AMLP set off a round of debate over the tax benefits of the various structures, leading to significant confusion over the most efficient way to establish exposure to the MLP market [see MLP ETFs: Fact and Fiction].

[Read more about the new ETN on the fund fact sheet. For updates on all new ETPs, sign up for our free ETF newsletter.]

Disclosure: No positions at time of writing.