When income investors turn to the energy space, they often turn to high yielding master limited partnerships (MLPs). That asset class is accessible via exchange traded products such as the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) and the ALPS Alerian MLP ETF (NYSEArca: AMLP), the two largest MLP-related exchange traded products.
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. Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.
While energy is the worst-performing sector in the S&P 500 to this point in 2017, MLPs are faring better. For example, AMLP is up 2.6% year-to-date. AMLP currently yields nearly 7.5%, or more than triple the yield investors will find on 10-year U.S. Treasuries.
“In other words, a $1 million investment in the Alerian MLP ETF could be expected to give you annual distributions of $74,900, based on the current share price. Its annual management fee is 0.85% of assets. The current prospectus also includes 0.57% held for deferred taxes, which brings the total expense ratio to 1.42%,” reports Philip Van Doorn for MarketWatch.