Lucrative yields offered by exchange traded notes (ETNs) that track energy-focused master limited partnerships (MLPs) are attracting more investors as the expansion of the nation’s energy infrastructure brings in more revenue for MLPs that rent out energy service facilities.
There are no MLP ETFs currently available. However, the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) tries to reflect the Alerian MLP Index, which is up an average 11% per year over the last decade, report Tom Lauricella and Carolyn Cui for The Wall Street Journal. The rally in MLPs has depressed yields from 8.8% from a year ago to 6.3%. Any interest-rate increases could reduce dividend payouts. AMJ yields 5.34%. [Van Eck Files to Launch an MLP ETF.]
Despite the fact that the Index has returned 21% in 2010, observers are cautioning that the limited selection of MLPs available could make MLP funds vulnerable to any decline in prices. Currently, there are about 70 MLPs, with a total market value of around $200 billion. The Alerian Index weights puts 41% of total holdings into five companies.
MLPs are partnerships. The general partner is responsible for running the partnership while individual investors are limited partners, according to Harry Domash’s Dividend Detective. Income is allocated among all partners, proportionate to the percentage of ownership.