ETNs, unlike ETFs, do not hold physical shares of the underlying companies of the index. ETNs are an unsecured debt security that promises to pay out the value of the index at its maturity, along with any distributions. Since the note is a debt security, it is exposed to the default risk of the underwriting bank. [How MLP ETF Structures Affect Yields and Returns]
MLP ETN investors are issued a 1099 form instead of the MLP K-1s during tax season. However, investors should be aware that distributions on MLP ETNs are not tax-deferred and distributions are taxed as standard interest income. [MLP ETF Investors Should Know How Taxes Affect Returns]
“MLPI is best suited for investors who want to buy the total return of a diversified portfolio of MLPs while reducing their paperwork load,” Woodham said.
For more information on master limited partnerships, visit our MLPs category.