Most people “don’t realize they’re being double-taxed,” Will Braman, chief investment officer at financial advisers Ballentine Partners, said in the article.
Due to the corporate tax liabilities, MLP ETFs could come with a greater expense, which would eat away at overall returns. [The Active Approach to MLP ETFs is Working]
Alternatively, hybrid MLP ETFs, or non-C-corporation MLP ETFs, have reduced direct MLP holdings to under 25% to meet regulatory rules and hold other energy infrastructure stock through subsidiaries as a way to avoid double taxation. These hybrid options include the Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX), Alerian Energy Infrastructure ETF (NYSEArca: ENFR) and actively managed First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP). [Hybrid Energy Infrastructure ETFs Could Outperform MLPs]
Additionally, the exchange traded note option, AMJ, does not hold underlying investments. Instead, AMJ is considered a type of debt obligation, so the ETN tracks the underlying index minus fees. Over the past year, AMJ is up 12.1%. However, potential investors are exposed to credit risk from the underwriting bank, so if the issuer defaults then you may be left holding an empty bag.
For more information master limited partnerships, visit our MLPs category.
Max Chen contributed to this article.
CORRECTION: AMLP’s underlying index.