ALPS Plans Tax-Friendly MLP ETF

ETF Trends

Expanding on its successful master limited partnership investment strategy, ALPS has filed with the Securities and Exchange Commission to launch an MLP-related fund that avoids the double tax bite associated with the C-Corporation structure.

According to a recent filing, the Alerian Energy Infrastructure ETF will try to reflect the performance of the Alerian Energy Infrastructure Index, which is comprised of 30 U.S. and Canada companies engaged in the transportation, storage and processing of energy commodities, or “midstream energy businesses.”

Specifically, the index includes master limited partnerships 25%, U.S. MLP affiliates taxed as corporations 30%, Canadian MLP Affiliates taxed as corporations 10%, U.S. energy infrastructure & power companies taxed as corporations 15% and Canadian energy infrastructure companies taxed as corporations 20%.

Within each sub-sector, component holdings are equally weighted.

The new fund’s MLP holdings are specifically limited to under 25%. In comparison, ALPS also offers the largest MLP-related ETF, the Alerian MLP ETF (AMLP) , which is structured as a C-corporation and incurs a deferred tax liability out of the returns every day. Consequently, some argue that AMLP has an expense ratio closer to 5% – 0.85% base expense ratio plus 4% fees listed as “other expenses.” [A Closer Look at Master Limited Partnership ETFs and ETNs]

“Because of legislation forbidding open-end funds from owning more than 25% of their portfolio in MLPs, AMLP is structured as a C-corporation,” according to Morningstar analyst Abby Woodham.

The actively managed First Trust North American Energy Infrastructure Fund (EMLP) was the first ETF to limit direct MLP exposure to less than 25% and holds exposure to MLP affiliates and other energy infrastructure stocks. EMLP has a 0.95% expense ratio and a 2.66% 30-day SEC yield.

The recently launched Global X MLP & Energy Infrastructure ETF (MLPX) also limits MLP holdings to under 25%. MLPX has a 0.45% expense ratio. [Global X’s New MLP ETF Attempts to Avoid Tax Bite]

For more information on new fund products, visit our new ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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