They say there is always a bull market somewhere and that is even true of the energy patch, the worst performing sector in the S&P 500 this year.
With a loss of about 8%, the Energy Select Sector SPDR (NYSEArca: XLE) is the only one of the nine sector SPDR ETFs sporting a year-to-date loss, but that does not mean the year has been a total was for energy ETFs. In fact, the top performing energy ETF to this point in the year has not only easily topped the S&P 500, but also shown investors there are asset classes where active management is advantageous.
Up nearly 19.1%, the First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP) is 2014’s best non-leveraged energy ETF. Not only has EMLP soundly beaten the S&P 500, but the actively managed ETF has also bested popular passively managed rivals such as the Alerian MLP ETF (NYSEArca: AMLP). AMLP, the largest MLP ETF, has lost 2.1% this year. [Active Approach to MLP ETFs is Working]
EMLP offers investors another reason to embrace active management of MLPs. Hybrid MLP ETFs, of which EMLP is one, 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. [Hybrid MLP ETFs Outperform]
Said another way, EMLP’s annual fee of 0.95% is high relative to a passively managed ETF, but some of EMLP’s rivals do not limit MLP holdings to 25%, subjecting investors to increased taxation and astronomical total cost ownership.
The tradeoff with EMLP’s tax efficient structure, in addition to the high fee, is a lower dividend yield than many MLP investors have become accustomed. EMLP’s trailing 12-month is just 3.02% compared to almost 6.3% on AMLP.
That low by comparison yield is a direct result of EMLP capping its MLP exposure. By doing so, the ETF’s largest holding is Kinder Morgan (NYSE: KMI), which by way of one of the largest energy sector acquisitions in U.S. history, earlier this year folded its partnerships into a traditional corporate structure. EMLP also allocates a third of its weight to electric utilities, a nice advantage in year which utilities are vying with health care to be the S&P 500’s best sector.
Investors have not been deterred by EMLP’s yield. Although it is low by MLP standards, it is still almost 90 basis points above where 10-year Treasury yields closed Monday. The ETF has added $413 million in new assets this year and with $971.3 million in assets under management, EMLP is one of the largest actively managed ETFs in the U.S. [Another Big Year of MLP ETF Inflows]
EMLP’s ascent has helped make First Trust the second-largest issuer of actively managed ETFs behind PIMCO. For the week ending Dec. 12, First Trust had $2.44 billion in actively managed ETF assets under management across 14 funds, according to AdvisorShares data.
First Trust North American Energy Infrastructure Fund
