Master limited partnership exchange traded funds have been outperforming the broader markets as investors seek exposure to the booming U.S. energy industry and attractive income generation.
On the upcoming webcast, Discover MLPs: Investing in America’s Energy Renaissance, John Vaughan, senior V.P. and portfolio strategist at Direxion Investments, Corey Hoffstein, CIO and portfolio manager at Newfound Research, and Manish Jain, fixed-income portfolio manager at Zacks Investment Management, describe the MLP alternative asset category and how the investment can help bolster an income portfolio.
MLPs are limited partnerships that are traded on a U.S. exchange and traditionally generate large cash flows that payout the majority to investors as dividends. Unlike other energy sector stocks, MLPs primarily deal with distribution and storage of energy products, so their business model is less reliant on the commodities market and more on how much they can move.
For instance, the Direxion Zacks MLP High Income Shares (NYSEArca: ZMLP) has an annualized distribution rate of 7.19% and dividends dished out quarterly.
ZMLP tracks a factors-based index that ranks holdings based on value, liquidity, short itnerest, dividend yield and other factors. Components are then equally weighted to make up 4% of the total portfolio and rebalanced quarterly. [A Smart Way to MLP ETFs]
The ETF can be held in a retirement account, along with non-qualified accounts, and investors will avoid the hassle of filing out a K-1 form since the ETF is structured as a C-Corp.
According to Direxion, MLPs can help investors diversify due to the assets’ low correlation to stocks and bonds. Additionally, MLPs offer attractive dividends to income oriented investors due to the way the companies are structured.
So far this year, MLPs have generated double the returns of the broader equities market with an average yield of about 5.2%, reports Dimitra DeFotis for Barron’s. [MLP ETFs Reveal Long-Term Staying Power]
The Alerian MLP Index has increased 17% year-to-date, compared to the 8.0% rise in the S&P 500. Over the past year, the index has returned 24.1%, whereas the S&P 500 generated 17.4%.
ZMLP Top-10 Holdings
Table Courtesy: Direxion
For more information on master limited partnerships, visit our MLPs category.
Financial advisors who are interested in learning more about investing in MLP-related ETFs can register for the Thursday, October 2 webcast here.