The energy sector has certainly seen better days thanks to the COVID-19 pandemic, but fixed income investors searching for yield can say the same. With low yields abound in the current market environment, an alternate source of income can be had within the energy sector, or, specifically, the VanEck Vectors® Energy Income ETF (EINC).
What makes EINC different from your run-of-the-mill energy ETF? The fund focuses specifically on the income streams provided by a master limited partnerships that specialize in energy infrastructure.
Per an Investopedia article, MLPs “are a business venture that exists in the form of a publicly traded limited partnership. They combine the tax benefits of a private partnership—profits are taxed only when investors receive distributions—with the liquidity of a publicly-traded company (PTP).”
“A master limited partnership trades on national exchanges,” the article explains. “MLPs are situated to take advantage of cash flow, as they are required to distribute all available cash to investors. They can also help reduce the cost of capital in capital-intensive businesses, such as the energy sector.”
As far as the fund is concerned, EINC seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® North America Energy Infrastructure Index. The fund will normally invest at least 80% of its total assets in securities that comprise the fund’s benchmark index.
The index is a rules-based index designed to give investors a means to track the overall performance of North American companies involved in the midstream energy segment, which includes master limited partnerships (“MLPs”) and corporations involved in oil and gas storage and transportation.
EINC gives investors:
- High Income Potential: Historically, MLPs and energy infrastructure companies have exhibited attractive yield characteristics
- Positioned for Growth: Energy infrastructure companies are positioned to benefit from the growing output of oil and natural gas in Canada and the United States
- No K-1s: Access to energy infrastructure companies without K-1 tax reporting, fund-level taxation, leverage or debt counterparty risk
“The operating advantage for midstream companies is that they generate a steady stream of cash flow, without a high level of exposure to underlying commodity prices,” an InvestorPlace article published in Nasdaq noted. “Midstream MLPs own pipelines, terminals and other related storage and transportation assets. Likewise, midstream firms make money based on the volumes stored and transported through their systems. In this way, the companies operate similarly to a toll road.”
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