With investors looking at paltry yields in the fixed-income market, master limited partnership exchange traded funds have garnered greater attention as an attractive source of income and a portfolio diversifier.
“Investors continue to migrate to the ETF asset class, and we are big fans of energy MLPs,” Bruno del Ama, co-founder and CEO of Global X, said in an interview with The Energy Report. “Energy transportation is an infrastructure play with a couple of benefits. First, it provides significant diversification to complement investors’ portfolios; second, it provides income in a low-interest rate environment.”
While investors can pick and choose individual MLP securities, MLP ETFs provide a broad, diversified exposure — investors would have to invest in more than one MLP to gain similar benefits. [MLP ETFs Offer Yield and Long-Term Value]
“These infrastructure, toll-type investments tend to have low correlations to the general economy and the equity markets,” Bruno del Ama added in the Energy Report interview. “They are nice diversifiers in portfolios.”
Moreover, MLP ETF investors do not need to fill out K-1 forms on their tax returns. Instead, they would only receive a simple 1099 form. However, MLP ETFs will come with corporate taxes for capital gains inside the ETF.
According to U.S. federal law, MLP ETFs, which are registered as a regulated investment company, cannot have over 25% of its portfolio in MLPs. As such, MLP ETFs fall under a C-corporation designation and collect deferred tax liability.