The 411 on MLP ETFs & ETNs
August 13th at 2:36pm by Tom Lydon
Many have piled into master limited partnership exchange traded funds, enticed by prospects of higher yields. However, investors should take a step back and familiarize themselves with the investment before diving in head first.
In the first six months of 2013, master limited partnership related mutual funds and exchange traded products, which include both ETFs and exchange traded notes, have gathered $8 billion in new inflows, the Wall Street Journal reports.
The the largest MLP-related ETF, Alerian MP ETF (NYSEArca: AMLP), has garnered $1.8 billion in net inflows year-to-date, according to IndexUniverse.
The rising interest in MLP assets is not surprising as MLPs have returned 16% annually over the decade ended July 31, compared to an annual average return of 7.6% in the S&P 500 index.
The widely observed Alerian MLP index, the underlying index of AMLP, shows a yield about 5.7%, whereas the benchmark yield on 10-year Treasuries is about 2.6% and the S&P 500 has a 1.97% yield. Additionally, many analysts anticipate MLP yields to rise as the U.S. energy boom continues. [Rising Rates and MLP ETFs]
However, analysts are now concerned that the rise in MLPs is driving up valuations and dampening the quality of offerings.
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