Master limited partnership and energy infrastructure exchange traded funds were trading near all-time highs as investors look for investment alternatives in a shaky market and capitalize on the shale oil expansion.
For instance, the Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX) was hovering around $18.1 per share before dipping 0.7% Tuesday. MLPX has gained 10.7% year-to-date.
According to a recent Fitch Ratings report, Non-Traditional MLP Assets (Changing Mix, Changing Risk), non-traditional MLP Investments continue to support hydraulic fracturing. MLPs can also serve as a stable investment due to their low volatility and revenue source.
“In some cases, these operations exhibit favorable characteristics of traditional pipelines such as longer-term contractually supported revenues, strong counterparties, and low volatility,” according to a press release.
While MLPs are associated with the energy sector, they have a low correlation to energy prices, along with the broader equities markets, as the assets act like a toll-road in the nation’s energy infrastructure. Consequently, these companies will generate a steady revenue stream as oil continues to flow.
Moreover, MLPs have a historically low correlation with the S&P 500, which helps diversify a portfolio.
Fitch expects MLPs will play a large role in the U.S. energy sector as shale operations expand. [Increased Investment Activity Could Energize Energy ETFs]
“Traditional assets will continue to dominate the MLP space as the enormous investment in large-scale pipeline/midstream infrastructure projects to serve the shale basins has several years to play out,” Fitch said.
Unlike popular MLP ETPs, like the Alerian MP ETF (NYSEArca: AMLP) and JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ), MLPX limits direct exposure to MLPs to 25% of the portfolio and includes other energy infrastructure stocks. MLPX is also one of the cheapest MLP-related funds, with a 0.45% expense ratio. AMLP and AMJ both have 0.85% expense ratios.
Hybrid MLP ETFs include exposure to master limited partnerships, MLP affiliates and other energy infrastructure stocks so that they won’t have to be structured as a C-Corporation and incur taxes whenever it rebalances holdings. MLPX and the Alerian Energy Infrastructure ETF (NYSEArca: ENFR) are two passive, index-based options, whereas the First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP) is actively managed. ENFR has a 0.65% expense ratio and EMLP has a 0.95% expense ratio. [How MLP ETF Structures Affect Yields and Returns]
Global X MLP & Energy Infrastructure ETF
For more information on master limited partnerships, visit our MLPs category.