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5 ETFs to Master Master Limited Partnerships

There was a time when master limited partnerships (MLPs) and the corresponding MLP ETFs were somewhat immune to declines in oil prices. Those days are gone and oil’s fourth-quarter woes prove as much.

The fourth-quarter loss of almost 10% for the Alerian MLP Infrastructure Index, a widely followed MLP benchmark, only looks good compared to the quarterly loss of almost 23% for the United States Oil Fund (NYSEARCA:USO).

Despite the challenges presented by rising interest rates and falling oil prices, some income investors remain fond of MLPs due to asset class’s reputation for lofty yields and high income potential. The Alerian MLP Infrastructure Index yields 8.12% compared to 2.86% on the S&P 500 Energy Index.

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With some market observers opining that a bottom is near for oil prices, here are some MLP ETFs for income investors to consider.


Alerian Energy Infrastructure ETF (ENFR)

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Expense ratio: 0.65% per year, or $65 on a $10,000 investment.

The Alerian Energy Infrastructure ETF (NYSEARCA:ENFR) avoids some of the potential tax pitfalls associated with pure play MLP ETFs because this fund is not a dedicated MLP ETF. ENFR targets the Alerian Midstream Energy Select Index, which includes a slew of companies that are not structured as MLPs. This MLP ETF includes some midstream companies, which could be poised to rally if oil bounces back.

“For most of this year, midstream and other energy stocks were underperforming relative to the gains in crude,” said Alerian in a recent note. “It may feel like ancient history now, but WTI crude closed above $76 per barrel on October 3. Since then, oil prices have declined more than 30% through November 30, dragging down energy stocks. The midstream space has been negatively impacted, but it is holding up much better than its energy counterparts.”

Due to the fact that is not a pure MLP ETF, ENFR is not as high-yielding as some rival funds. Its trailing 12-month yield is just 2.79%, but in a rough quarter for energy investments, ENFR is down less than 8%. That is significantly less than some traditional MLP ETFs.


First Trust North American Energy Infrastructure Fund (EMLP)

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Expense ratio: 0.95% per year, or $95 on a $10,000 investment.

Many MLP ETFs are passively managed and as such have lower fees than the 0.95% charged by the actively managed First Trust North American Energy Infrastructure Fund (NYSEARCA:EMLP). Across a slew of asset classes, actively manged funds are lagging passively managed counterparts, but EMLP is a star among active MLP ETFs.

Oil is one of the worst-performing commodities in the current quarter and the same is true of energy at the sector level, but EMLP actually posted a November gain of almost 4% and is down just 2% for the fourth quarter.

Since inception six and a half years ago, this MLP has returned nearly 6%, a performance that compares favorably with the category average. TransCanada Corp. (NYSE:TRP) and Enterprise Products Partners L.P. (NYSE:EPD) combine for 11.50% of EMLP’s weight. This MLP ETF has a five-star Morningstar rating.


Tortoise North American Pipeline Fund (TPYP)

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Expense ratio: 0.40% per year, or $40 on a $10,000 investment.

The Tortoise North American Pipeline Fund (NYSEARCA:TPYP) is a passively managed MLP ETF that tracks the Tortoise North American Pipeline Index. While TPYP lacks the benefits of active management, the fund has recently been steady among MLP ETFs, posting a November gain and a modest-by-comparison fourth-quarter loss.

Like the aforementioned ENFR, TPYP is not a pure play MLP ETF. TPYP can allocate up to 25% of its weight to MLPs, but that number is currently closer to 20%. TPYP, which also has a five-star Morningstar rating, has a distribution yield of almost 4.20%.

Investors are displaying an affinity for TPYP this year. The MLP ETF has added $77.50 million in assets year-to-date, a significant chunk of its roughly $192 million in assets under management.


Global X MLP & Energy Infrastructure ETF (MLPX)

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Expense ratio: 0.45% per year, or $45 on a $10,000 investment.

The Global X MLP & Energy Infrastructure ETF (NYSEARCA:MLPX) targets the Solactive MLP & Energy Infrastructure Index and is one of the more tax-efficient MLP ETFs on the market.

“Unlike traditional MLP funds, MLPX avoids fund level taxes by limiting direct MLP exposure and investing in similar entities, such as the General Partners of MLPs and other energy infrastructure corporations,” according to Global X.

MLPs and general partners combine for 36.51% of MLPX’s weight while energy infrastructure represent 39.57% of the fund’s weight. This MLP ETF holds 37 stocks with its top 10 holdings combining for approximately two-thirds of the fund’s weight. The average market capitalization of the MLPX roster is $9.12 billion, putting this MLP ETF in mid-cap territory.


VanEck Vectors High Income Infrastructure MLP ETF (YMLI)

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Expense ratio: 0.83% per year, or $83 on a $10,000 investment.

The VanEck Vectors High Income Infrastructure MLP ETF (NYSEARCA:YMLI) is an MLP ETF targeting MLPs with favorable dividend and yield traits. With a trailing 12-month yield of 8%, this MLP ETF makes good on its yield promise.

YMLI is one of the more focused offerings in the MLP ETF space with just 25 holdings. The fund’s components have weights ranging from 2.48% to 5.97%. YMLI, which tracks the Solactive High Income Infrastructure MLP Index, is off about 8.65% in the fourth quarter and resides 18% below its 52-week high.

The fund’s P/E ratio of 14.24 reflects the energy sector’s value proposition relative to the broader market, but there is some volatility with this bet as highlighted by a three-year standard deviation of 22.34%.

Todd Shriber does not own any of the aforementioned securities.

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