A High-Yield MLP ETF Strategy That Hedges Against Weak Oil

A Darling of a US Dividend Equity ETF

A Smart Beta ETF for Dividends & Currency Protection

In general, MLPs are publicly traded partnerships engaged in the transportation, storage and processing of minerals and natural resources. 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.

However, the recent plunge in oil prices have caused some to question the correlation with MLPs since lower prices caused U.S. crude oil production to fall off, which in turn meant less oil being transported through pipelines.

“Recent history has shown that oil price declines can have a significant impact on MLP share prices,” Christian Magoon, ETF industry veteran and CEO of Amplify ETFs, said in a note. “AMLX is an ETF designed to hedge the impact of oil on MLPs while seeking to provide income and professional management of the portfolio.”

Investors have typically looked at MLPs as a way to gain income, along with income growth potential, and access to an expanding energy industry.

MLP provide income potential as the firms typically pay out the majority of operating cash to investors on a quarterly basis. Looking ahead, MLPs may continue to grow distributions if there is increased energy demand and new energy infrastructure spending. MLPs may also be a play on the current Trump administration’s plans to expand its infrastructure spending, which may also include increased energy pipelines to transport the increasing need for oil to fuel our economy.

For more articles on oil ETFs, visit our Oil Category.