An investor's guide to investing in important MLP ETFs (Part 7 of 7)
An alternative to investing in MLPs directly is to invest in MLP exchange-traded funds (or ETFs). An ETF can hold many different asset classes, including stocks, bonds, commodities, and derivatives. Investing in an ETF is an effective way to investing a portfolio of MLPs without actually buying or selling the individual stocks and gaining exposure to the individual risks of owning the stocks. For example, major constituents of the Alerian MLP ETF AMLP are Enterprise Products Partners (EPD), Kinder Morgan Energy Partners (KMP), Plains All American Pipeline (PAA), and Magellan Midstream Partners (MMP), all of which are well-known MLPs. ETFs trade closely to the market value of the sum of all their underlying holdings or NAVs. Most ETFs are passive vehicles that aim to track an index. An index fund seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index.
Below are key tables showing the characteristics of select MLP ETFs.
The largest MLP ETF fund is the Alerian MLP ETF (AMLP), which tracks the Alerian MLP Index, a capitalization-weighted composite of 50 energy MLPs. Other MLP ETFs include the Yorkville High Income MLP (YMLP), the Global X MLP ETF (MLPA), the Yorkville High Income Infrastructure MLP ETF (YMLI), and the Global X MLP & Infrastructure ETF (MLPX). Note that these other MLP ETFs all have significantly smaller market caps than AMLP.
We should note that most MLP ETFs are structured as “C-Corps.” So, these ETFs accrue deferred tax liability for their future tax liability on the capital appreciation of their investments, and the distributions they receive on the equity securities of the MLPs are considered returns of capital. However, the Global X MLP & Infrastructure ETF (MLPX) is structured as a regulated investment company (or RIC) and not a C-Corp, which allows it to avoid paying expenses at the fund level and reduce fund-level expenses. The fund invests mostly in MLP-affiliated organizations, but not in MLPs themselves.
To learn more about investing in important MLPs and MLP ETFs, visit Market Realist’s Master Limited Partnerships page.
Browse this series on Market Realist:
- Part 1 - A key overview of investing in individual MLPs versus MLP ETFs
- Part 2 - An investor’s guide to AMLP and its holdings, like Kinder Morgan
- Part 3 - An investor’s guide to YMLP and its holdings, like Ferrellgas
- Kinder Morgan Energy Partners