Categorized | Energy ETF, MLP ETF

The Best MLP ETF for Midstream Exposure

The U.S energy industry is expanding quickly, domestic production is booming thanks to unlocking unconventional reserves.  Combined US crude production from the Bakken and Eagle Ford plays currently exceeds 1.6 million barrels per day – 31% of total US cride production. That’s up from just 400,000 b/d in 2010. Crude volumes are expected to cross 3.2 million barrels in 2016.

Total US oil production is now in excess of 7 million b/d, a level not seen since the 1990’s. This has prompted an expansion in midstream infrastructure as more pipelines are needed to bring oil from the interior to the US Gulf Coast market.

Master Limited partnerships (MLPs) are primarily related to the midstream oil and gas sector. MLPs are ideally positioned to benefit from the booming oil and gas sector in the US. They own and operate storage facilities and pipelines needed to transport oil, gas and other commodities from refineries to consumers.

MLPs generally have two partners; general and limited. A general partner sits at the top of the organization; he is the one who manages all of the operations of the business. Limited partners, also known as unit holders because they own publicly traded units, provide capital and are not involved in day to day operations.

All MLPs must get ~90% of their cash flows from natural resources, commodities and real estate. The structure also offers tax advantages where MLP unit holders may receive up to 90% of investment distributions without paying immediate taxes on the income.

MLPs provide investors with a solid investment vehicle for income generation, especially during volatile markets.

MLP ETF LIST

There are a few MLP ETFs for investors to select from:

ALPS Alerian MLP ETF (NYSE:AMLP)
AMLP 18.48 [-0.26]
Average Volume: 2933460
Yield: 5.87%

MER: 0.85%
Alerian MLP ETF is the most prominent exchange-traded fund. It holds more than $4.4 billion in net assets. The fund invests at least 90% of total assets in its underlying index, the Alerian MLP Infrastructure Index.  The Alerian MLP Infrastructure Index (NYSE: AMZI), a capped, float-adjusted, capitalization-weighted composite of 25 energy infrastructure Master Limited Partnerships that earn the majority of their cash flow from the transportation, storage, and processing of energy commodities.

mlp etf

Sector Weighting

The fund was first launched in August of 2010. It’s top holdings include Enterprise Products Parnters (EPD), Kinder Morgan Energy Partners (KMP), Plains All American Pipeline (PAA), Magellan Midstream Partners (MMP) and Energy Transfer Partners (ETP).

Live ONE YEAR Chart of the ALPS Alerian MLP ETF - Symbol AMLP

Yorkville High Income MLP ETF (NYSE: YMLP)
YMLP 18.52 [-0.20]
Average Volume: 84502
Yield: 8.61%

MER: 0.82%
The Yorkville High Income MLP ETF seeks to track, after fees and expenses, the Solactive High Income MLP Index. The index is a rules-based benchmark designed to track the performance of selected Master Limited Partnerships (“MLPs”) and royalty trusts which are publicly traded on a U.S. securities exchange.

First Trust North American Energy Infrastructure Fund (NYSE: EMLP)
EMLP 26.2332 [-0.4268]
Average Volume: 270197
Yield: 3.03%

MER: 0.95%
The First Trust North American Energy Infrastructure Fund is an actively managed exchange-traded fund. The fund invests primarily in MLPs, Canadian income trusts and their successor companies, pipeline companies, utilities, and other companies that derive at least 50% of their revenues from operating or providing services in support of infrastructure assets such as pipelines, power transmission and petroleum and natural gas storage in the petroleum, natural gas and power generation industries.

Global X MLP ETF (NYTSE: MLPA)
MLPA 16.93 [-0.20]
Average Volume: 37259
Yield: 5.13%

MER: 0.45%
The Global X MLP ETF offers exposure to the Solactive MLP Composite Index, which is designed to give investors a means of tracking the overall performance of the United States master limited partnerships (MLP) asset class. MLPA is comprised of 30 MLPs engaged in the transportation, storage, processing, refining, marketing, exploration, production and mining of natural resources. MLPA’s expense ratio of 0.45% makes it nearly half the cost of the MLP ETF industry average of 0.83%.

Live ONE YEAR Chart of the Global X MLP ETF - Symbol MLPA

AMLP is entirely focused on the midstream oil and gas sector while its peers are mostly focused on the midstream sector. While it is the most liquid ETF, MLPA offers a combination of higher yield and lower management fees. Selecting the best mlp etf will depend on parameters specific to each investor. The list above provides a bridgehead to make the selection process easier.

MLPs make money no matter what commodity prices are doing, they are paid to move the commodity no matter at what price it’s trading at.  They combine the income-producing benefits of bonds with the potential of capital appreciation of stocks.  Remember that there are commodity risks as MLP returns could be impacted if the price of oil and gas drops substantially for a long period of time. Not to mention correlation risk where MLPs move in lockstep up and down with the market. Overall, holding an MLP ETF offers a lower risk than holding an oil etf or a natural gas etf.

ETFs offer a great way to hold a diversified basket of MLPs. An MLP ETF can be bought and sold just like a stock through an online brokers.

 

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