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Linn Energy, LLC Message Board

  • norrishappy norrishappy Dec 17, 2012 10:07 AM Flag


    Alerian MLP Index total return coming in at 3%. MLPs have lagged stocks this year โ€“ the total return of the Standard & Poor's 500 Index has been 15% year-to-date.

    AMJ, launched by JPMorgan in April 2009, tracks the Alerian MLP Index, and boasts a five-star rating from Morningstar. The underlying index is considered the benchmark for MLPs. It includes the 50 most prominent energy MLPs, which means it is heavy with large-cap pipelines, which are considered secure toll-takers on the U.S. energy highway.

    Unlike closed-end funds, which own the underlying assets, ETNs are unsecured-debt instruments that promise a return tied to an underlying index. ETN yields are taxed as ordinary income. Closed-end fund and ETF yields, meanwhile, can be taxed at multiple rates depending on the underlying MLP returns. The result: tax headaches similar to individual MLPs.

    With the much-lamented approach of the fiscal cliff and the taxes that come with it, the apparent disadvantage of ETNs โ€“ taxation at the ordinary income rate โ€“ may actually be an advantage. Since taxpayers in the top bracket already pay Uncle Sam 35% of their ETN income, an increase in tax rates won't have a massive impact on their tax obligations. A portion of the payouts from closed-end funds and ETFs, however, may see tax rates jump from 15% to above 40%, barring Congressional action.

    Of course the next outbreak of OLB occult investment theory is just a matter of time. All things considered I would bet the large pipes to out perform the SP this year. But all the risk factors and high fees do not make these 'magical' *indexes' a rational idea.