Exchange traded products that follow MLPs “get away from the single-stock risks and tax issues,” Feng said at a recent Morningstar ETF conference. He is a former managing director and portfolio manager of SteelPath Capital Management, an MLP investment manager, and also covered the sector at Goldman Sachs.
MLPS have a 10-year annualized return of 18%, Feng said. There is about $4.5 billion linked to Alerian’s MLP indexes.
Since pipelines are monopolies, Feng said MLPs have “toll road” business models. The top holdings in Alerian MLP ETF are Enterprise Products Partners (NYSE: EPD), Kinder Morgan Energy Partners (NYSE: KMP) and Plains All American Pipeline (NYSE: PAA). There are 25 stocks in the portfolio.
The ETF has an annual yield of 6.4%, according to XTF.com, and holds assets of about $1.6 billion.
“Investing in MLP securities directly will require shareholders to complete a number of schedule K-1s. Though AMLP provides exposure to the MLP space, it circumvents the exhausting K-1 filing process. Shareholders will file via the traditional form 1099,” Mornigstar’s Bailin wrote.
JPMorgan Alerian MLP Index ETN, an exchange traded note, is the larger product with over $3 billion in assets. ETFs and ETNs have different tax treatment and credit risks.
JPMorgan Alerian MLP Index ETN
