Energy has been one of the top-performing sectors so far in 2021. Yet rather than getting a run-of-the-mill energy fund with a handful of heavy allocations towards big oil, investors can opt for an alternate play via the Global X MLP & Energy Infrastructure ETF (MLPX).
According to data from CSIMarket.com, energy leads the pack of sectors for year-to-date gains at about 12%.
At a 0.45% expense ratio, MLPX seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive MLP & Energy Infrastructure Index. The fund invests at least 80% of its total assets in the securities of the index. It also invests at least 80% of its total assets in securities of master limited partnerships and energy infrastructure corporations.
The fund’s 80% investment policies are non-fundamental and require 60 days prior written notice to shareholders before they can be changed. The index tracks the performance of midstream energy infrastructure MLPs and corporations.
MLPs have become very popular in recent years for primarily two reasons: (1) required quarterly distributions provide a steady stream of current income, and (2) because they are partnerships, MLPs avoid corporate income taxes at both the federal and state level as the the tax liability is passed through to the individual partners.
Overall, MLPX gives investors the following benefits:
- Tax Efficiency: Unlike traditional MLP funds, MLPX avoids fund level taxes by limiting direct MLP exposure and investing in similar entities, such as the General Partners of MLPs and other energy infrastructure corporations.
- Midstream Exposure: MLPX invests in midstream infrastructure entities such as pipelines and storage facilities that have less sensitivity to energy prices.
- High Income Potential: The fund invests in MLPs and other energy infrastructure companies, which may result in above-average yields.
Outperforming Other Energy Indexes
MLPX is up over 30% within the past few months, which underscores the strength of the energy sector as of late. Recovering oil prices have a hand in the recent rally on the hopes that a Covid-19 vaccine will help revive the economy again, which should once again spur more transportation and thus, a demand for oil.
When stacked up against other energy indexes the last six months, MLPX has also been an outperformer. Within the last six months, the fund is up almost 22%, outpacing the S&P 500 Energy Sector index’s 18.34% and the MSCI ACWI Energy Sector index’s 17.15%.
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