Without hedges of some form there is no assurance that income can be maintained at an acceptable level. Once more hedges are not "perfect", they do not provide 100 percent price variation pertection. The reason is that in natural gas or oil there are several variables that need to be considered.
1. Natural Gas price at Henry Hub
2. Basis, which contemplates the (discount/premium) differential at the production location. For example, production in the San Juan Basin is currently about 50 cents under September futures but can be over a dollar under at times.
3. Production costs which constantly fluctutate based on oil field service rates and other factors.
You can't criticize management for hedging to insure your payout but there are different ways to hedge which can give some upside if prices go up but provide downside protection. Options, collars and futures are the primary tools to hedge price and basis swaps can protect against basis risk. Once a hedge is employed, this reduces price risk but also is an offset to upside potential gain. When you get involved with these MLPs, better realize the hedges are there to manage for an acceptable outcome for you the investor and not for speculation. If you want pure upside(and downside) exposure to the commodity best invest in a royalty trust such as HGT or PBT which don't hedge.
I just read this thread and wanted to say thank you all for the eduation. I'm new to EVEP, and bought a small amount 500 shares in my Ira (Only because thats were the money is).
I will investigate the tax issues as well. I appreciate the boards wisdom.
Many of the posters you are reading lost 50% of their porfolio value last year. Be Patient above all(Hard to do)---If you try to get it back quick you are apt to lose more.--Dont be unduly influence by one or two posters---Go back about three/four months in the LINN messages and read them all---An education most of which applys to EVEP and other MLPs. If you do that you will have a much better understanding of MLPs and what you face---And it costs you nothing but time.No Fee--Best Wishes
Be careful about high yielding stocks (dividends greater than 10%) outside of MLPs. Many times they have high yields because there is something wrong with the business. There are exceptions, but not often.
MLPs generally have higher yields because investors don't want to deal with the complicated tax rules they are subject to (which you are discovering yourself). Technically, you have to file a tax return in every state the MLP does business in, even if you're not a resident of the state.
Thanks. I lost half the value of the ira last year when it was with a financial advisor I paid 1% to for managing it. When I saw how much was down, I decided to just do it myself so I was looking for something to try to make up the losses quickly as possible. evep pays something like 14% which would be reinvested, and I had planned to add more units with that, and maybe add some more on dips, but if it will get me put in the slammer for tax problems, better not try that! I found a REIT, RSO, that i got in to recently also. hope that one is OK. geez, so many complications. thanks again for your help. I will try google for ira mlp info also.
Instead of investing directly in MLPs, you could invest in closed-end mutual funds that hold MLPs. These closed-end mutual funds can be held in an IRA without the same tax problems of MLPs.
If you don't know what a closed-end mutual fund is, it's a mutual fund whose shares actually trade on a stock exchange like the stock of companies. To buy a closed-end mutual fund, you just place an order with your stock broker and it's held in your brokerage account.
There are several closed-end mutual funds that own MLPs. Some of them are:
The yield of most of these is 8 to 9%.
No, I'm not suggesting you get out of EVEP. If your IRA contains just 500 shares, I would guess you are unlikely to ever have enough UBTI to trigger any tax liability.
I don't know about Schwab, but I'd be surprised if you found anyone at any brokerage company who knew anything about MLP UBTI.
Your best bet is, as I said earlier, to do a Google search on "MLP UBTI" and educate yourself of the possible tax implications of holding MLPs in an IRA.
If you plan to hold EVEP for a long time, there's really no need to keep it in an IRA, as MLPs are very tax-advantaged in non-taxable (non-IRA) accounts.