A key insight into UBS’s ETN products (Part 4 of 9)
About the underlying index
The UBS ETRACS Alerian MLP Index ETN (AMU) tracks the Alerian MLP Index (AMZ). The float-adjusted, capitalization-weighted index consists of 50 large- and mid-cap energy MLPs (master limited partnerships).
Here are AMZ’s top five constituents, along with their weightages (per Alerian):
- Enterprise Products Partners LP (EPD), 17.73%
- Energy Transfer Partners (ETP), 7.74%
- Magellan Midstream Partners LP (MMP), 7.4%
- Plains All American Pipeline (PAA), 7.19%
- MarkWest Energy Partners LP (MWE), 5%
About the ETN
AMU’s performance depends on the performance of AMZ. UBS (OUBS), the issuer, defines ETNs (exchange-traded notes) as senior, unsecured, unsubordinated debt securities that provide investors with exposure to the total returns of various market indices—in this case, AMZ—minus investor fees.
Based on the cash distributions paid out by the MLPs in the index, the ETN makes a coupon payment to its investors on a quarterly basis. AMU has paid out $1.47 per note in the past year.
Performance this year
AMU started the year at $28.83 and consistently rose before falling steeply towards the later part of the year to its current price of $28.45 (as of December 17). This is more or less the same price as the one from the beginning of the year.
The sharp decline could be due to the spillover effect of a generally failing energy sector and expectations of reduced profits from falling crude prices in the long run.
It is important to note that some MLP companies get paid in kind. As a result, these companies experience commodity price exposure, and they take a hit.
Based on its quarterly coupon payment, AMU is currently yielding about 5.3%.
In the month of November, TC PipeLines LP (TCP) was AMU’s best-performing constituent. TCP saw 15.5% price returns, while Memorial Production Partners LP (MEMP) had price returns of -34.3%.
The next part of this series will discuss UBS’ infrastructure-only focused MLP ETN.
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