Van Eck Global, the name behind the Market Vectors exchange traded funds (ETFs), filed with the Securities and Exchange Commission to offer a passive ETF based on master limited partnerships (MLPs).
The filing states that the new fund will reflect the Market Vectors MLP Index and will be listed on the New York Stock Exchange, writes Olivier Ludwig for IndexUniverse. MLPs, or master limited partnerships, concentrate on the storage and transportation of energy products.
Van Eck’s proposed ETF follows a similar offering by ALPS Advisors‘ earlier announcement to launch the Alerian MLP ETF. Current options on MLP products only include exchange traded notes (ETNs). [ALPS Advisors Files for First MLP ETF.]
Van Eck’s MLP ETFs will be taxed as regular corporation for federal income tax purposes. The ETFs will be subject to federal income taxes on its taxable income at federal rates and will also be subject to state income taxes. Additionally, any changes in federal or state tax laws would have a negative affect on the MLPs’ tax treatment or financial performance. [MLP ETNs: Another Source of Income?]
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.