The only reason I see why you would ever invest in an ETF that shorts MLP's is simply to protect a long position. I imagine the best time to buy this is right around the distribution. As many of us know, the price always falls after the distribution from people waiting for one last payout so in theory you could profit by buying this ETF on the must own date and then selling your ETF position a week later. Certainly, different MLP"s have different payment dates but with KMP and EPD so heavily weighted, there should be an affect on the price following their payment dates. Some seem to be wondering why KMP and EPD are so heavily weighted, easy they are the two best MLP's with the largest market caps. Same reason why Apple makes up almost 20% of a Nasdaq index fund. I doubt this is going to affect the price action overall too much other than to make it even more volatile around the distribution rate.
EPD AND KMP make up 20% of the new short fund.
I`ll bet whom ever bought into this new MLP short Fund first is not a happy camper. Not only are they taking a daily Beating but they will also be required to pay the Distributions. However as always the Funds owners will make money and thats what its always about.I wouldn`t ever think it a good idea to short the MLP sector partly because of having to pay the yield if it goes north instead of south, but mainly because there is no viable alternative on the horizon to replace gas and Oil and the Pipeline Companies are always in the Perfect position to grow and prosper.The funds make the same money no matter how poorly you do and to me that in itself is suspect.
If nothing else, it'll create a bit of buy pressure in short covering when the fund goes bust.
But just a Bit. I can't imagine that a short MLP fund would attract much money
Well, if nothing else, it's a sign that someone thought they could make some money by creating yet another ETF. For every bet out there, an opposite bet is available. Keep in mind that these funds will get dinged for the distribution once a quarter, so even if the prices of EPD and others were to go flat, the fund would take a hit.
No doubt, the MLPs have done really well, so it stands to reason that many are wondering if they have topped. I own EPD (since 2007) and have pondered this. But, the fundamentals are still compelling. Natural gas is cheap, and will continue to be cheap. So, it will keep flowing. And, as long as it flows, EPD will have plenty of cash for distributions. And, as long as interest rates stay extremely low, people are going to gravitate toward these rich yields. There are very few places to get > 5% these days. Undoubtedly, that could change. I see current US policy leading to inflation. But, it will not happen any time soon. If and when it does, I will reevaluate.
I am not in favor of bonds and I believe a bubble has formed. The difference here is that with bonds, in order to get rich yields, one must include some risky issues in the mix. Furthermore, even a small uptick in interest rates could send those bonds tumbling. If we do see rates creep up, I would not be surprised to see EPD's stock price take a hit. But, it would be insignifant in comparison.
There is a price at which I would exit, regardless of whether there is no change in the interest rate environment. That price is where the yield falls below 5%. I don't know if that will happen. I think EPD will soon break $40. How far beyond the low 40's it can go is questionable. GLTA
Historically there have been two times in the last 15 or so years when shorting a basket of MLPs made sense. First was when the credit markets went to hell. The other was when interest rates spiked in the early 2000s.
Indeed as has already been said, for every position there is a counter position. There are probably more ETFs than stocks. Shorting MLPs would make sense in the short run if either credit became unobtainable as in 2008 or if a huge spike in interest rates made savings accounts attractive compared to MLPs. Nothing to worry about right now.
I can see using it as a short trade. When EPD or KPM announces a pricey acquisition and you know a secondary is around the corner, it would be a way to play the upcoming unit price drop.
Otherwise as long as...
-ZIRP remains in effect by the FED and folks are yield shopping
-the dollar continues its slide and people want to own gold or oil/gas equities to retain value
-MLP tax advantages remain in effect in the face of the coming tax increases
...than, I think shorting the MLP space is probably going to be a disappointing investment.
I just sold my epd . The price was to tempting and I believe the mlps have peaked on valuation.i can always by it back or go to the new fund. this market is alittle crazy now, Ill hold onto to the cash for now