ALPS Alerian MLP ETF (NYSEArca: AMLP) has seen assets under management double the past year as investors pile into master limited partnerships in search of yield, returns and diversification.
The MLP fund, which launched in August 2010, reached $6 billion in assets last week.
“As a point of reference, assets in the fund, one year ago, were $3 billion. Pretty darn impressive,” said Chris Hempstead, director of ETF execution services at WallachBeth Capital LLC.
“Year to date AMLP is up 13.7% while throwing off a 12 month yield of 5.7%,” he added.
Over the past year, AMLP has added $2.6 billion in net inflows. [Some Master Limited Partnership ETF Picks for Yield]
MLPs focus on the processing, transportation and storage of oil and natural gas. They pay most of their income to investors and enjoy tax advantages. [Solar, Clean Energy ETFs Rally on MLP Parity Act]
Next page: MLP ETF advantages and disadvantages
“The sector also offers some diversification benefits, as it is only loosely correlated to other income-focused asset classes,” writes Morningstar analyst Abby Woodham in a profile of AMLP. “MLPs are less volatile than the S&P 500 and significantly less volatile than mid-cap energy equities because their fees are charged based on volume, not unstable commodity prices.”
However, she points out the ETF has significantly lagged its index since inception.
“The problem stems from federal regulations that prevent open-ended funds from holding more than 25% in MLPs. To get around this restriction, AMLP is structured as a corporation and pays income tax at the corporate level,” Woodham explains.
“Any taxable income from the underlying MLPs is an annual tax liability, and upon the sale of the portfolio’s shares the fund must also pay up at the corporate level. AMLP accounts for these tax liabilities in the net asset value, so although AMLP’s prospectus expense ratio is 0.85%, its gross expense ratio (which accounts for these tax liabilities) is close to 5%,” the analyst noted. [Morningstar Warning on MLP ETF]
Other exchange traded products for MLPs include JP Morgan Alerian MLP Index ETN (NYSEArca: AMJ), Global X MLP ETF (NYSEArca: MLPA), Yorkville High Income MLP ETF (NYSEArca: YMLP), Credit Suisse Master Limited Partnerships ETN (NYSEArca: MLPN), Morgan Stanley Cushing MLP High Income Index ETN (NYSEArca: MLPY) and UBS ETRACS Wells Fargo MLP Index ETN (NYSEArca: MLPW).
Full disclosure: Tom Lydon’s clients own AMLP.