Gains in the midstream energy sector are running parallel to an energy rally, giving funds like the Global X MLP & Energy Infrastructure ETF (MLPX ) strong year-to-date gains.
At a 0.45% expense ratio, MLPX seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive MLP & Energy Infrastructure Index. The fund invests at least 80% of its total assets in the securities of the index. It also invests at least 80% of its total assets in securities of master limited partnerships and energy infrastructure corporations.
The fund’s 80% investment policies are non-fundamental and require 60 days of prior written notice to shareholders before they can be changed. The index tracks the performance of midstream energy infrastructure MLPs and corporations.
MLPs have become very popular in recent years for primarily two reasons: because required quarterly distributions provide a steady stream of current income, and because — since they are partnerships — MLPs avoid corporate income taxes at both the federal and state level as the tax liability is passed through to the individual partners.
Overall, MLPX gives investors the following benefits:
- Tax efficiency: Unlike traditional MLP funds, MLPX avoids fund-level taxes by limiting direct MLP exposure and investing in similar entities, such as the general partners of MLPs and other energy infrastructure corporations.
- Midstream exposure: MLPX invests in midstream infrastructure entities such as pipelines and storage facilities that have less sensitivity to energy prices.
- High income potential: The fund invests in MLPs and other energy infrastructure companies, which may result in above-average yields.
As Energy Goes, So Does MLPX
As mentioned, MLPX is showing strength with a gain of about 60% for the year. Alongside this is a strong energy sector rally as evidenced by the S&P 500 Energy index being up over 80%.
“Fundamentally, just about every major oil and gas stock takes its cue from the commodity markets,” a Motley Fool article said. “On Friday, oil prices gained ground once again, with a 1.5% gain taking the price close to $80 per barrel for West Texas Intermediate.”
“Global markets have already bid Brent crude up above the $80 per barrel mark,” the article added. “On the natural gas side, futures prices eased slightly lower today, but prices remain at considerably elevated levels compared to where they were just a few weeks ago.”
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