Global X Files for New Type of MLP ETF - ETF News And Commentary
26 Dezember 2012 - 2:15PM
Zacks
One of the biggest stories in the ETF world over the past two
years has definitely been the rise of MLP products. The first was
JPMorgan Alerian MLP ETN (AMJ) which has seen
incredible success and currently has over $5 billion in AUM, and
this was shortly followed by a dozen more which drilled down into
the segment or provided exposure using an ETF structure
instead.
While UBS has the most in the space—with a half dozen in
total—several other companies have thrown their hat into the ring
as well. One of the newest and by far the cheapest offering comes
from Global X and their Global X MLP ETF
(MLPA).
This fund only charges investors 45 basis points a year in fees,
roughly half the cost that investors see in nearly all the other
products in the space. Still, the product remains relatively
unpopular despite its discount price tag, as it has amassed under
$20 million in assets since its debut roughly eight months ago
(read No Dividend Tax Debate for these High Yield ETFs).
Even with this somewhat disappointing launch, the company
remains undeterred, looking to expand its lineup even more in the
space, as evidenced by a recent SEC filing that called for another
MLP ETF. While a great deal of information was not released in the
document, such as the ticker symbol or expense ratio, we have
highlighted some of the key points from the filing below:
The proposed ETF will look to track the Solactive MLP &
Affiliates Index, before fees and expenses. This benchmark looks to
track both energy-related MLPs, and MLP affiliates in a single
index.
In this case, this means that the fund will focus in on MLPs
that engage in the transportation, storage, processing, refining,
exploration or production of natural resources. Meanwhile, the MLP
affiliates include corporations that own—directly or indirectly—MLP
general partner interests.
These general partner interests mean that the corporation in
question has an economic interest in an MLP and receive a
percentage of the MLP profits over a certain level. Due to this
distinction, this could add a new tax wrinkle to the MLP ETF
equation (see How to Play the MLP ETF Space).
Depending on the structure, MLP affiliates may be taxed as
corporations and thus do not offer up the pass through capabilities
that are the hallmark of ‘regular’ MLPs. While this does mean that
a K-1 likely won’t be required, it does suggest that double
taxation will be an issue, and thus payouts could be lower.
Still, the inclusion of MLP affiliates could open up the space
for Global X and allow it to tap into some often overlooked firms
that still have great MLP-like exposure. After all, companies that
own or operate MLP assets are very likely to be driven by the same
factors as their pure MLP cousins, so it is reasonable to expect
MLP affiliates to have a similar risk reward profile.
ETFs vs. ETNs
Investors should also note that the number of ETFs in the MLP
space is very few at this point, as most have opted for the ETN
structure to play the segment. Currently, just four of the 13 are
built as ETFs (AMLP being the oldest), as most issuers have opted
to avoid the K-1 with the ETN structure despite the traditional
lack of popularity that we have seen in the Exchange-Traded Note
world (see ETFs vs. ETNs: What’s The Difference?).
Without a full slate of information available, I am left to
speculate on how this proposed Global X ETF will fit into the
current MLP lineup. I think the confusing tax issues—thanks to the
use of both MLPs and MLP affiliates—will definitely need to be
straightened out before investors will ever embrace the fund.
If they can do that—as well as keep expenses low—while still
offering up a new type of exposure to the crowded space, Global X
could see some decent inflows from investors seeking a new type of
play in the MLP ETF world.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
Follow @Eric Dutram on Twitter
JPM-ALERN MLP (AMJ): ETF Research Reports
ALERIAN-MLP (AMLP): ETF Research Reports
GLBL-X MLP ETF (MLPA): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
Global X MLP (AMEX:MLPA)
Historical Stock Chart
Von Mai 2024 bis Jun 2024
Global X MLP (AMEX:MLPA)
Historical Stock Chart
Von Jun 2023 bis Jun 2024