A New MLP ETF

Published on Thursday, 21 June 2012 22:28 Written by Todd Shriber

Master limited partnerships (MLPs) have soared in popularity among investors over the past five to seven years and it’s easy to understand why. Not only does this asset class provide significant tax advantages that no common stock could ever offer, MLPs as a group are arguably the best dividend-paying sub-sector on the market today.

Providers of exchange-traded products, both ETFs and ETNs, have met investor demand for access to MLPs with aplomb. Just a few years ago, there were just one or two MLP ETPs on the market. Today, that number is in the double-digits. Even with that growth, just two funds – the JPMorgan Alerian MLP Index ETN (NYSE: AMJ) and the ALPS Alerian MLP ETF (NYSE: AMLP) – control nearly all the MLP ETF and ETN assets under management.

The dominance of AMJ and AMLP could change because a new MLP ETF is offering a little something different. That fund is the Global X MLP ETF (NYSE: MLPA), which debuted just two months and has already accumulated almost $5.8 million in assets under management.

MLPA’s top-10 holdings account for about half of the fund’s weight and the ETF is populated by the firms many investors would call the usual suspects of the MLP universe. That means companies such as Enterprise Products Partners (NYSE: EPD), Magellan Midstream (NYSE: MMP), Kinder Morgan (NYSE: KMP) and ONEOK Partners (NYSE: OKS).

Even though MLPs have gone through some retrenchment this year (what sector hasn’t?) there remain compelling reasons to have at least small exposure to this asset class. Energy MLPs are owners and operators of key pieces of infrastructure involved in this supply chain, and as a result may stand to benefit from continued energy use and additional investments in U.S. energy infrastructure, according to Global X.

High yields, robust dividends, tax advantages and a credible investment thesis all bolster the reasons for considering any MLP ETF or ETN as a portfolio addition. However, MLPA has a secret weapon that sets it apart from its more established counterparts: A lower expense ratio.

With an annual fee of 0.45%, MLPA is 40 basis points below the 0.85% average charged by comparable MLP products. Forty basis points may not sound like a lot, but it translates to this: A $10,000 investment in MLPA means an investors loses $45 to fees in the first year, but $10,000 into a rival means the investor loses $85 in the first year. Over time, that $40 difference adds up and if the investor doesn’t own MLPA, the difference is working against him.

Among MLP ETFs, MLPA is a game-changer because of its lower fees and it is the expense ratio that will likely ensure this fund is ultimately successful.