MLP ETFs (and ETNs): An ETFdb.com Guide2015-06-24
Interest in Master Limited Partnerships (MLPs) has climbed significantly over the past few years as the evolution of the exchange-traded product structure has made accessing this asset class cost-effective and easy for investors of all walks. MLPs have caught the attention of yield-hungry investors in particular as this oftentimes overlooked corner of the domestic energy market offers attractive, steady dividend distributions similar to utility companies.
What are MLPs?
MLPs are publicly traded limited partnerships, an overwhelming majority of which operate as energy infrastructure companies. These businesses own and operate “natural gas” and “crude oil” pipelines and storage tanks; as such, they offer indirect exposure to the energy market since their revenues are not directly tied with underlying commodity prices. MLPs operate under the “toll road” business model in the sense that they generate fee-based revenues, which gives them a risk/return profile that’s more comparable to a utility company than an energy producer or explorer [see also MLP ETFs: Fact And Fiction].
MLP ETFs vs. ETNs
For investors interested in MLP exposure, there are potential advantages in both the ETF and ETN structures. ETNs may offer more favorable tax treatment if the underlying MLPs appreciate significantly in value. Furthermore, ETNs eliminate tracking error since they are debt securities, but this also exposes investors to the credit risk of the issuing institution. Investors focusing on after-tax yield may opt for an MLP ETF as the treatment of distributions is generally more favorable for this product structure. Investors need to take a look under the hood and consider their objectives before establishing a position because the product structure can have a material impact on one’s MLP investing experience.
Below we outline the offerings in the MLPs ETFdb Category, highlighting noteworthy features for each one.
ALPS Alerian MLP ETF (AMLP ): This is the most popular option in the MLP space, with the distinguishing factor that it’s structured as an ETF. AMLP has accumulated an impressive $9 billion+ in assets under management since launching in late 2010.
JP Morgan Alerian MLP Index ETN (AMJ ): This is the second-most popular product in the MLP space, having accumulated over $5 billion in assets under management since launching in April of 2009.
UBS E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index (MLPL ): This ETN offers 2x monthly leveraged exposure to the same index as MLPI and AMLP. While that leverage introduces some additional risk, it also creates the opportunity for some pretty impressive yields that could make this ETN very appealing to yield-hungry (and risk-tolerant) investors.
Credit Suisse Cushing 30 MLP Index ETN (MLPN ): This ETN is linked to an equal-weighted index that uses an objective, formula-based, proprietary valuation methodology to rank the MLPs for inclusion in the portfolio. For those looking to maintain a balanced portfolio (or simply to steer clear of cap weighting), there could be some appeal to MLPN.
Exchange Traded Concepts Yorkville High Income MLP ETF (YMLP ): This ETF offers exposure to all sorts of MLPs, going beyond the energy sector. In addition to holding royalty trusts and energy firms, YMLP also makes allocations to companies involved in marine transportation and the production and marketing of other natural resources such as timber and fertilizers. It also focuses on higher yielding MLPs, which results in a distribution yield that exceeds many competing products.
Morgan Stanley Cushing MLP High Income Index ETN (MLPY ): This ETN is linked to a dividend-weighted index consisting of 30 MLPs that hold energy infrastructure and related shipping assets in North America.
UBS E-TRACS Alerian Natural Gas MLP Index (MLPG ): This MLP ETN offers targeted exposure to the natural gas industry; MLPG’s underlying portfolio consists of holdings that generate the majority of their revenues from the transportation, storage, and processing of natural gas and natural gas liquids.
Global X MLP ETF (MLPA ): MLPA is a passive ETF that seeks to replicate the Solactive MLP Composite Index. The index is intended to give investors a means of tracking the overall performance of the United States master limited partnerships (MLP) asset class.
First Trust North American Energy Infrastructure Fund (EMLP ): This actively managed ETF invests in MLPs, Canadian income trusts, pipeline companies, and utilities that usually generate at least half of their revenues from the operation of infrastructure assets such as pipelines and power transmission.
iPath S&P MLP ETN (IMLP ): Launched January 4, 2013, this ETF tracks the S&P MLP Index, which provides exposure to leading partnerships that trade on major U.S. exchanges and are classified in the GICS Energy Sector and GICS Gas Utilities Industry.
Barclays ETN+ Select MLP ETN (ATMP ): This fund invests in midstream U.S. and Canadian MLPs, limited liability companies and corporations. ATMP restructured its index effective April, 2015 to include 32% and 28% target weights for the top Limited Partnership (LP) and General Partnership (GP) constituents.
UBS ETRACS Alerian MLP ETN (AMU ): This Alerian MLP ETN is linked to an index holding 50 MLPs whose cash flows derive from the transportation, storage and production of energy commodities.
Yorkville High Income MLP ETF (YMLP ): YMLP is a passive ETF that seeks to replicate the Solactive High Income MLP Index.
C-Tracks Miller/Howard MLP ETN (MLPC ): The index is a rules-based proprietary index developed by Miller/Howard Investments, Inc., designed to measure the performance of 25 master limited partnerships (MLPs).
Zacks MLP High Income Shares (ZMLP ): The index selects 25 Master Limited Partnerships (MLP) utilizing a methodology proprietary to Zacks. The objective of the index is to select a group of MLPs with the potential to yield and outperform the S&P 500 Index and other benchmark indices on a risk-adjusted basis.
Barclays OFI SteelPath MLP ETN (OSMS ): OSMS is a passive ETN that seeks to replicate Barclays OFI SteelPath Midstream MLP Index. The index is designed to track the performance of a basket of direct interests in master limited partnerships and limited liability companies organized in the United States.
Yorkville High Income Infrastructure MLP ETF (YMLI ): YMLI is a passive ETF that seeks to replicate the Solactive High Income Infrastructure MLP Index. The 25 constituents have the proper balance of income quality and quantity, and are measured by distribution size, growth and coverage ratio.
RBC ETN Linked to Yorkville MLP Distribution Growth Leaders Liquid PR Index (YGRO ): YGRO is a passive ETN that seeks to replicate the Yorkville MLP Distribution Growth Leaders Liquid Index. This Index is a fundamentally driven investment strategy designed to track the performance of 25 MLPs with high quality distribution growth and liquidity profiles.
ETRACS Wells Fargo MLP Ex-Energy ETN (FMLP ): FMLP is a passive ETN that seeks to replicate the Wells Fargo MLP Ex-Energy Index. The index is intended to measure the performance of all non-energy master limited partnerships (MLPs) listed on the New York Stock Exchange (NYSE).
Alerian Energy Infrastructure ETF (ENFR ): ENFR is a passive ETF that seeks to replicate the Alerian Energy Infrastructure Index. The index consists of 30 core North American energy infrastructure companies that engage in the transportation, storage, and processing of energy commodities.
InfraCap MLP ETF (AMZA ): AMZA is an active ETF and does not seek to replicate a specified benchmark.
Junior MLP ETF (MLPJ ): MLPJ is a passive ETF that seeks to replicate the Solactive Junior MLP Index and is designed to track the overall performance of the small-capitalization segment of the United States master limited partnerships (MLP) asset class.
Disclosure: No positions at time of writing.