The ALPS Alerian MLP ETF (NYSEArca: AMLP), the largest exchange traded fund holding master limited partnerships (MLPs), is also retreating along with other MLP ETFs. Over the past week, AMLP is down more than 4% and some of that loss could be attributable to Fed fears.
Related: Master Limited Partnership ETFs Are Back on Trend
“Because REITs, MLPs, and BDCs are pass-through entities, the retained earnings pool mostly runs dry. To grow, these entities must issue either new equity or new debt. Rising interest rates raise the cost of both. If these pass-through entities have to tap capital markets, particularly for debt, their financing costs rise relative to their revenue and cash flow decreases, putting the indispensable dividend or distribution at risk,” adds ETF Daily News.
MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
Vanguard REIT ETF
