EMLP: Active Pursuit of Energy Income | ETF Trends

With the energy sector roaring higher after a lengthy slumber, plenty of income investors are renewing their affinity for master limited partnerships (MLPs).

A slew of passive ETFs provide exposure to the income-generating asset class, but there are benefits to active management, which is accessible via the First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP).

EMLP “is an actively managed exchange-traded fund. The Fund’s investment objective is to seek total return. The Fund’s investment strategy emphasizes current distributions and dividends paid to shareholders,” according to First Trust.

As an active fund, EMLP doesn’t have to allocate all of its lineup to MLPs. There are tax benefits to that strategy because funds that are solely allocated to MLPs often carry pesky tax burdens.

EMLP components can include “U.S. and Canadian natural gas and electric utilities, corporations operating energy infrastructure assets such as pipelines or renewable energy production, utilities, publicly-traded master limited partnerships or limited liability companies taxed as partnerships, MLP affiliates, and other companies that derive the majority of their revenues from operating or providing services in support of infrastructure assets such as pipelines, power transmission, and petroleum and natural gas storage in the petroleum, natural gas and power generation industries,” according to First Trust.

In addition to income, MLPs are often prized for not being vulnerable to oil price gyrations. That doesn’t mean EMLP isn’t responsive to the energy sector rising as highlighted by the fund’s 12.68% year-to-date gain.

EMLP offers other near-term benefits, including practicality as a play on infrastructure spending as well as resurgent cyclical stocks.

“As the global economy prepares for life after the COVID-19 pandemic, we find that many investors’ attention has begun to shift towards industries and themes that may benefit,” according to First Trust research. “We view industrial, manufacturing, and infrastructure stocks as potential beneficiaries of a cyclical rebound in earnings in the months ahead, but also believe many of these stocks may benefit from several longer-term trends, such as the growing likelihood of large-scale public infrastructure spending and the desire of many companies to bolster their supply chains. Moreover, we believe valuations for many of these companies seem relatively attractive.”

For more news, information, and strategy, visit the Active ETF Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.