With nearly $4 billion in assets under management, the ALPS Alerian MLP ETF (NYSEArca: AMLP) is royalty in the master limited partnership (MLP) ETF universe.
AMLP seeks investment results that correspond generally to the price and yield performance of its underlying index, the Alerian MLP Infrastructure Index. The index is comprised of energy infrastructure MLPs that earn a majority of their cash flow from the transportation, storage, and processing of energy commodities.
The fund is fast-approaching its tenth anniversary, which makes it one of the most seasoned ideas in this category.
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.
AMLP Matters for Income
As income-minded investors look for ways to diversify their portfolio, one may consider master limited partnerships or MLP-related ETFs to enhance yield generation.
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.
While many investors flock to utilities equities for above-average yields, MLPs offer high yields as well with perhaps better potential for capital appreciation.
“Energy infrastructure and utilities occupy a similar income-focused lane with investors, but there are several notable characteristics that differentiate the two industries,” writes Alerian analyst Bryce Bingham. “While utilities have outperformed so far in 2020 due to the volatility in energy markets, investors who are expecting further oil price and economic recovery and seeking high income, diversification, and value should continue to consider an allocation to midstream.”
MLPs face no “federal income tax liability at the entity level.” AMLP is higher by more than 5% over the past month.
Other funds with exposure to income-generating energy assets include the VanEck Vectors Energy Income ETF (EINC) and the Global X MLP ETF (NYSEArca: MLPA).
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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.
