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MLP ETF Winners from the Kinder Morgan Plan's Aftermath

Zacks Equity Research

Kinder Morgan Inc. (KMI) has been in news since it announced big consolidation plans on August 11. The founder of the oil and gas firm, Houston-based billionaire Richard Kinder, has planned to bring all its publicly traded master limited partnerships – Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB) – under one roof.

The firm already received an early clearance under the Hart-Scott-Rodino Antitrust Improvements Act (HSR.V) from the Federal Trade Commission for its planned purchase of Kinder Morgan Energy Partners L.P. on August 25, 2014. The merger deal worth $70 billion is expected to be sealed by the year end.

The move will help Kinder Morgan to cut its massive capital spending which will in turn enhance its dividend profile. Management expects to raise dividend by about 10% each year from 2015 through 2020. Per bizjournals, the consolidated Kinder Morgan aims to be nation's top dividend-paying energy company (read: MLP ETFs: Still Good for Income Investors?).

Once set for operation, the joint entity will be tagged as the largest energy infrastructure company in North America and the third-largest global energy company with an enterprise value of about $140 billion.

Welcomed News to the Space

 While the news allowed the shares of KMI and its MLPs cousins to skyrocket on August 11, it spread cheers in the entire MLP space.  Almost every member in the space has added substantial gains since the announcement.

The concerned MLP companies have allocations in several big MLP indices, making broad-based gains self explanatory. One such index is the Alerian MLP Index (read: MLP ETFs Soar on Kinder Morgan Consolidation Plan).

Though there are several options available in the space to play Kinder Morgan’s strategy with most having decent allocations to the in-focus four firms, we have highlighted a few of these strong momentum plays (as evident by the astounding gains offered by these since August 11), which may be worth keeping an eye on to see if these MLP ETFs can keep up their winning ways in the coming days:  

Global X MLP & Energy Infrastructure ETF (MLPX)

This product follows the Solactive MLP & Energy Infrastructure Index and holds 39 stocks in its basket. Of these, KMI and KMR take the second and seventh spots, respectively, with a combined share of 13.8%. EPB accounts for a small slice in the basket with less than 1% of total assets.

The fund has AUM of $172.7 million and charges 45 bps in annual fees. Volume is moderate at around 100,000 shares on average. MLPX is up 37% since August 11.

Barclays ETN+ Select MLP ETN (ATMP)

The note follows an index which is looks to provide exposure to a basket of midstream U.S. and Canadian master limited partnerships.  The index invests 8% of assets in KMP, 4% in KMI and 1.96% in EPB, respectively.

The note has accumulated about $393.4 million in assets and charges 95 bps in fees. The product has surged about 22.7% since the Kinder Morgan news hit the market (read: 3 Low Beta ETFs for This Volatile Market).

E-TRACS Wells Fargo MLP Index (MLPW)

The ETN has also outperformed many of its MLP counterparts by gaining nearly 22.9% since August 11. The product targets the master limited partnerships’ (MLP) corner of the U.S. energy segment and tracks the ETRACS Wells Fargo MLP Index.

The note failed to garner enough investor interest with AUM of just $15.9 million and sees a sparse volume of less than 1,000 shares a day. MLPW charges 85 bps in annual fees and expenses (read: MLP ETFs: Great Picks for the Energy Sector?).

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