The proposed MLP ETFs differ from currently offered ETNs in that the ETFs are subject to tracking errors. ETNs are debt issues backed by the credit and good faith of the issuer, which means that their is credit risk. However, ETN investors get the exact return of the underlying benchmark after fees.
MLPs produce 90% of their income from interest, real estate rental or natural resource developments. The Internal Revenue Service views shareholders of MLPs as “partners” – MLPs may avoid double taxation of its income since they aren’t required to pay taxes at the corporate level.
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Max Chen contributed to this article.