First Trust has launched its first actively-managed ETF, debuting a fund this week that will offer exposure to U.S. and Canadian energy infrastructure companies. The North American Energy Infrastructure Fund (EMLP) will invest in Master Limited Partnerships (MLPs), Canadian income trusts, pipeline companies, and utilities that generate at least half of their revenues from the operation of infrastructure assets such as pipelines, power transmission, and petroleum and natural gas storage [see MLP ETFs: Fact & Fiction].
Interest in the North American energy infrastructure sector has spiked in recent years, in part because of the search for meaningful yield brought on by a prolonged period of record low interest rates. Because MLPs are required to distribute substantial portions of their earnings to receive certain tax advantages, these securities are known to offer hefty yields. Moreover, energy infrastructure assets generally do not exhibit the same degree of volatility as traditional oil stocks. Because these companies focus on the transport of energy commodities–and not the sale of these resources–there is considerably less sensitivity to spot prices [compare the volatility of AMJ and XLE].
The three asset classes represented by EMLP have a history of both stellar distributions and meaningful growth in dividends. As shown below, these securities have dwarfed the current returns offered by large cap U.S. stocks and even real estate, which is traditionally viewed as a high yield asset class:
|Asset Class||Distribution Rate||Dividend Growth (10 Yrs.)|
|Canadian Income Securities||5.4%||4.5%|
|S&P 500 Index||2.0%||5.8%|
Under The Hood
EMLP will be structured as an actively managed ETF, and as such will allow investors to report gains on a single Form 1099 as opposed to multiple K-1s. That gives this vehicle a significant advantage over purchasing individual securities, as it will cut down dramatically on administrative tasks.
The new fund will be sub-advised by Energy Income Partners, LLC, which has about $1.6 billion in assets under management. “Energy Income Partners and First Trust are pleased to offer investors this new opportunity to invest in the energy infrastructure sector when it is experiencing significant upticks in demand and technological development,” said James Murchie, Chief Executive Officer of Energy Income Partners. “Energy infrastructure companies have strong fundamentals and we are extremely bullish on their prospects for return.”
The new energy infrastructure ETF will charge an annual expense ratio of 0.95%. The average for the MLPs ETFdb Category is about 0.80%, though there are far cheaper options available (MLPA charges just 0.45% annually).
Disclosure: No positions at time of writing.