New drilling and completion technologies such as horizontal drilling and hydraulic fracturing (“Fracking”) unlocked billions of barrel on oil and gas. This resulted in increasing drilling activity that has set the USA on the track of becoming the world’s largest oil producer by 2017 and a net exporter of natural gas by 2020 according to the US Energy Administration.
The growing activity in the energy sector is seeing booming demand for processing, transportation and storage facilities. Exploration and development activity is simply exploding! Obviously, a host of companies will benefit from the ongoing energy renaissance in the US. For investors seeking both yield and exposure to small cap juniors operating in this sector the following MLP ETF will do the job:
The Global X Junior MLP ETF (NYSE:MLPJ)
MLPJ $7.735 [+0.039]
Average Volume: 3462
The Global X Junior MLP ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Junior MLP Index. The Index is comprised of MLPs engaged in the transportation, storage, processing, refining, marketing, exploration, production, and mining of natural resources.
Live ONE YEAR Chart of the Global X Junior MLP ETF – Symbol MLPJ
Small cap companies are best position to grow their energy assets substantially as the North American energy infrastructure expands. Many of these small cap companies are typically not included in major MLP ETFs which makes MLPJ stand out among its peers typically focused on the mid-stream energy sector.
Furthermore, small cap companies are all potential M&A targets for larger entities seeking to increase their market share. This MLP clearly offers a higher capital gains upside potential than it’s peer MLPA. However, if it boils down to yield being the target, MLPA offers a higher yield.
The Global X MLP ETF (NYSE:MLPA)
MLPA $10.14 [+0.01]
Average Volume: 380056
The Solactive MLP Composite Index is intended to give investors a means of tracking the overall
performance of the United States master limited partnerships (MLP) asset class.
MLPA clearly offers a higher dividend but you might have noticed the MER is quite high for the sector: 3.52% vs less than 1%for MLPJ. Buying an MLP for its yield might seem like a no-brainer given the diversification and the booming sector you’re buying into. But keep an eye on your favorite newsroom in order to identify any risks that might neutralize or reverse this trend in the energy sector.
Each of these MLP companies, whether in exploration and production or in services, may be impacted by a wide range of factors. These include fluctuating commodity prices, adverse weather, lower demand due to increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest rates, declines in domestic or foreign production, accidents or catastrophic events such as a major pipeline rupture or spill, increasing operating expenses and economic conditions.
Despite the risks mentioned above, holding an MLP ETF offers a lower risk than holding an oil etf or a natural gas etf not to forget a juicy dividend. In the long run, exporting oil and liquefied natural gas should underpin the sector with healthy profits into the future and fuel dividend increases as export volumes rise along with infrastructure growth.
Finally, the mid-stream sector might offer you a better deal if you’re looking for a higher yield / lower MER MLP ETF, be sure to check the following MLP ETF article.