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5 MLP ETFs for Added Income

Todd Shriber

It is fair to say that 2018 has been interesting few months for master limited partnerships (MLPs) and the related exchange traded funds (ETFs) thus far. To start the year, fears of rising interest rates coupled with slack oil prices weighed on MLPs.

Then, in March, Federal Energy Regulatory Commission (FERC) announced a new rule that will prevent MLPs from recovering the income tax allowance (ITA), which is used part of the setting of rates for regulated cost-of-service pipelines. That turned into a sell-the-news event, sending MLP ETFs and their components tumbling.

Year-to-date, the Alerian MLP ETF (NYSEARCA:AMLP), the largest MLP ETF by assets, is lower by 3.5%. However, the news is not all bad. Oil prices are rallying and so are MLPs. Over the past two months, AMLP is up nearly 12%.

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Investors willing to bet on higher oil prices while getting some much-needed income may want to consider some of the following MLP ETFs.


MLP ETFs for Added Income: 

Source: Shutterstock

Alerian Energy Infrastructure ETF (ENFR)

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

The Alerian Energy Infrastructure ETF (NYSEARCA:ENFR) avoids some of the thorny tax issues associated with MLP funds that allocate more than 25% of their weight to MLPs, which is good news for investors looking to keep costs low.

ENFR’s underlying index, the Alerian Energy Infrastructure Index, features companies from four categories: US energy infrastructure MLPs (25%), US general partners (25%), US energy infrastructure companies (25%), and Canadian energy infrastructure companies (25%), according to ALPS.

After the FERC ruling in March, many ENFR member firms said they expect negligible to no impact from that ruling. That helped set the stage for ENFR’s recent recovery, which has seen the fund surge about nearly 10% over the past two months. ENFR still packs a powerful 30-day SEC yield of 6.00%.


MLP ETFs for Added Income: 

Source: Maciek Lulko (Modified)

Global X MLP & Energy Infrastructure ETF (MLPX)

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

Like the aforementioned ENFR, the Global X MLP & Energy Infrastructure ETF (NYSEARCA:MLPX) avoids fund-level taxes by capping exposure to companies that are explicitly classified as MLPs. Many of ENFR’s components are midstream energy infrastructure plays, a potentially lucrative slice of the broader MLP universe. That is also something to consider at a time when interest rates are rising.

“According to our research, 78% of midstream MLP debt is fixed-rate in nature, meaning coupon payments will remain the same throughout the life of the bond regardless of the rate environment,” said Global X.

MLPX is up 11.26% over the past two months and has a trailing 12-month dividend yield of 4.60%. The ETF’s standard deviation is 21.80%, indicating energy infrastructure investments can be more volatile than traditional equities.


MLP ETFs for Added Income:

Source: Felix Carmona via Flickr (Modified)

First Trust North American Energy Infrastructure Fund (EMLP)

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

The reason for that lofty fee on the First Trust North American Energy Infrastructure Fund (NYSEARCA:EMLP) is because this is an actively managed fund. However, a case can be made that EMLP is worth the fee as it has five-star Morningstar ratings for the past three years and five years.

With $2.18 billion in assets under management, EMLP is one of the largest actively managed ETFs of any variety. The First Trust fund justifies its rich fee in another way: performance. Over the past three years, a rough period for the energy sector, EMLP has performed significantly less poorly than its traditional passive rivals while delivering significantly less volatility.

EMLP holds 57 stocks with a median market value of $9.64 billion. Nearly two-thirds of the fund’s holdings are electric power and transmission or natural gas and transmission firms. EMLP’s 12-month distribution rate is 4.14%.


MLP ETFs for Added Income:

Source: Shutterstock

InfraCap MLP ETF (AMZA)

Annual fee: 1.93%, or $193 on $10,000 position.

The InfraCap MLP ETF (NYSEARCA:AMZA) is also actively managed, explaining its rich fee. Still, this a unique MLP ETF that many investors have already embraced as highlighted by its $590 million in assets under management.

AMZA’s managers can employ “opportunistic” short positions as hedges against rising interest rates or declining oil prices. That strategy has paid off. AMZA has also performed much less poorly than its traditional passive brethren over the past three years. AMZA is a focused MLP ETF with a roster that is small compared to the other funds highlighted here. Currently, the fund’s top three holdings combine for 41% of its weight.

“Security selection and weightings are based on security-level fundamental analysis and technical factors instead of market capitalization,” according to the issuer.


MLP ETFs for Added Income:

Source: Shutterstock

VanEck Vectors High Income Infrastructure MLP ETF (YMLI)

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

The VanEck Vectors High Income Infrastructure MLP ETF (NYSEARCA:YMLI) makes good on the high-yield promise with a distribution rate of 11.85%. YMLI holds 26 stocks, none of which command more than 4.51% of this MLP ETF’s weight.

The weighted average market value of those components is $5.5 billion, putting YMLI firmly in mid-cap territory. With a price-to-earnings ratio of 15.80, YMLI appears attractively valued relative to traditional equity benchmarks. However, the ETF’s three-year standard deviation of 24.39% implies a little more volatility than is found on some of the other MLP funds discussed here.

Todd Shriber does not own any of the aforementioned securities.

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