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.
Alternatively, investors who want to stick with ETFs but are wary of the C-corporation structure can consider hybrid MLP ETFs, or non-C-corporation MLP ETFs, which 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 the double-taxation issue.
SEE MORE: Yield-Generating MLP ETF Opportunities Are Growing
For instance, TPYP includes a 20% tilt toward MLPs, 39% MLP affiliates or owners and 41% other MLP affiliates. Sub-sector weights include natural gas pipelines 48%, crude oil pipelines 21%, local gas distribution companies 16%, gather & processing 11% and refined product pipelines 4%. Additionally, the ETF includes a 8.1% tilt toward SE and 7.3% to ENB.
MLPX includes a 23.6% tilt toward limited partnerships, along with 58.8% in MLP affiliates and 17.7% in energy infrastructure corporations. Top holdings include ENB 8.9% and SE 8.1%.
ENFR includes 25.4% U.S. MLPs, along with 25.1% U.S. energy infrastructure, 24.4% Canadian energy infrastructure and 25.0% U.S. general partners. The ETF’s top holdings include SE 5.0% and ENB 4.5%.
For more information on the energy sector, visit our energy category.
Global X MLP & Energy Infrastructure ETF