Investors seeking alternative income opportunities to traditional fixed-income and equity assets may consider looking into energy infrastructure exchange traded funds.
On the upcoming webcast, High Quality MLP Strategy: Understanding the Benefits of Pipeline ETF, Brian Sulley, Vice President of Tortoise Capital Advisors, and Matthew Weglarz, Portfolio Manager and Vice President at Tortoise Index Solutions, will talk about the negative tax consequences of traditional master limited partnership-related funds and an alternative through a broader energy infrastructure strategy.
MLP ETFs follow an index comprised of MLPs. However, the ETFs are structured as C corporations. Since MLP ETFs are structured as a C corp., these corporations are also required to pay corporate income tax on distributions before the distributions are passed through to investors – MLP ETFs are required to pay corporate taxes or a 35% federal rate on returns.
MLP fund investors are also taxed on the dividends and capital-gains distributions. Consequently, MLP ETF investors are double-taxed. While it is not an explicit cost, ETF investors would see the results of the corporate tax liabilities through wider tracking errors compared to the performance of the underlying MLPs.[related_stories]