Master limited partnership, or MLP, exchange traded funds are quickly gaining traction among yield-hungry investors, which is understandable given their high dividend payouts. However, potential investors should act with caution as there are some risks to consider.
MLP ETFs have fallen in May along with the equity market.
“Investors who are looking at higher yielding alternatives such as master limited partnerships and business development corporations must recognize that such investments encompass a great deal more risk than typical individual investors may be willing and able to assume,” Bob Johnson, an independent financial consultant, said, reports Robert Powell for MarketWatch. [An Overview of MLP ETFs]
Most investors have gravitated toward MLPs due to their high yields, with some individual companies issuing yields of up to 10%. Still, individuals need to do their homework on this specialized asset class before investing. [Yield Hunters Get More MLP ETFs]
“My advice to individual investors is quite simple,” Johnson said in the MarketWatch story. “Reaching for yield in a low-interest-rate environment is fraught with peril. Investors who are unable to accurately analyze and ascertain the risks inherent in such funds should steer clear from them.”