Master limited partnerships (MLPs) and some of the relevant exchange traded funds are proving somewhat steady this year in the face of falling oil prices. For example, the Tortoise North American Pipeline Fund (NYSEArca: TPYP) is down just 1% year-to-date.
Passively managed, the Tortoise North American Pipeline Fund tracks the Tortoise North American Pipeline Index. The Tortoise North American Pipeline Index is a float-adjusted, cap-weighted index comprised of U.S. and Canadian pipeline firms. The ETF debuted nearly two years ago. TPYP has hauled in about $72 million in assets since coming to market.
To qualify as an MLP, the companies pass through at least 90% of their income to investors, making the assets an attractive yield-generating investment.
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.
TPYP “is more diversified than a pure MLP index. In fact, it has 55% of the portfolio in traditional MLPs and the remaining in energy-related corporations and LLCs. This broadens the exposure to include nearly 90 stocks rather than the conventional 25-40 holdings that most dedicated MLP indexes are beholden to,” reports ETF Daily News.
With the markets flooded with oil and prices still depressed, basic economic theory suggests that consumption could rise to capitalize on the cheap crude. With higher consumption, MLP tollkeepers could profit off the increased transportation or storage of energy.
“Other than the obvious benefits of diversification, another advantage of investing in this sector through an ETF is that investors aren’t subject to a K-1 tax form. Owners of TPYP (and similar ETFs) are subject to standard 1099 dividend income just like a traditional stock fund,” according to ETF Daily News.
TPYP charges 0.4% per year, or $40 on a $10,000 investment. That is one of the lowest fees among MLP ETFs.
For more information on master limited partnerships, visit our MLPs category.