New MLP ETF on Tap for Yield Hunters
June 1st, 2012 at 10:12am by Tom Lydon
Provider ETF Series Solutions has announced it will begin trading the Zacks MLP ETF (NASDAQ: ZMLP) on Tuesday June 5. MLPs are publicly traded partnerships engaged in the storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources.
“While obviously energy-focused, the operations of most midstream MLPs are fairly diversified and largely insulated from commodity prices. Rather than being paid according to the value of the commodities they move, pipeline operators are paid by volume,” Benjamin Shepherd wrote on Seeking Alpha. [Be Careful When Stretching for Yield With MLP ETFs]
The Zacks index for the new ETF Series Solutions MLP fund will be made up of 25 selected stocks of domestically domiciled companies. The index selection process uses a proprietary, quantitative, multi-factor selection methodology designed by Zacks to identify MLPs that offer the greatest potential from a risk/return perspective. The Index is adjusted quarterly, or as required, to assure timely stock selections, reports ETF Daily News. The new ETF will have an expense ratio of 0.75%. [Yield Hunters Get More MLP ETFs]
The MLPs selected for the index also pay a dividend stream. On average, the MLP yields are around 5%-7%, and returns are known to be higher. Furthermore, MLPs are not subject to double taxation, ie corporate tax and corporate dividend tax, and MLPs themselves generally do not pay United States federal income taxes.
Distributions from MLPs offer a unique tax advantage because a portion of their payouts are considered a “return of capital,” not a dividend. Taxation is not incurred until an investor sells their holdings, reports Mike Kapsch for Investment U. [An Overview of MLP ETFs]
As the search for yield continues and investors pile into dividend focused investments, MLPs are quickly becoming a popular alternative. Interest rates are to remain low through 2014, so the chance for solid yield is even more important. [Master Limited Partnerships: MLP ETFs]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.