Drilling for a ‘Hot’ Master Limited Partnership ETF

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

The energy market is facing what is popularly called a “Catch-22.” While the worldwide desire to shift to cleaner sources of energy to preserve the standard of life that humanity has grown accustomed to has put pressure on energy stocks, the global supply chain shortage due to the continuing worldwide effects and periodic outbreaks of COVID-19 keeps boosting energy stocks. 

As a result of this paradox, investors will likely remain interested in energy companies for the foreseeable future. One form of energy company that has received attention as of late is the master limited partnership (MLP).

Similar in some ways to the real estate investment trust (REIT), the MLP combines the tax benefits of a private partnership with the liquidity of a publicly traded company. To qualify for such a designation (and the tax benefits that come with it), an MLP must generate at least 90% or more of its income from activities like the production, storage and transportation of natural resources.

An exchange-traded fund (ETF) that is dedicated to MLPs is the Global X MLP ETF (NYSEARCA: MLPA). Specifically, MLPA is exclusively centered around 20 to 30 U.S.-listed midstream MLPs, but it is especially interested in companies that are involved with transporting, storing and processing energy products. Companies are weighted by market capitalization, and the index is rebalanced each quarter.

Currently, the fund’s top holdings include Enterprise Products Partners LP (NYSE: EPD), Energy Transfer LP (NYSE: ET), Magellan Midstream Partners LP (NYSE: MMP), MPLX LP Partnership Units (NYSE: MPLX), Genesis Energy LP (NYSE: GEL), Plains All American Pipeline LP (NASDAQ: PAA), Western Midstream Partners LP (NYSE: WES) and DCP Midstream LP (NYSE: DCP).

This fund’s performance has been relatively strong, even when including the damage done by the COVID-19 pandemic. As of Nov. 16, MLPA has been down 1.78% over the past month but up 9.88% for the past three months. It is currently up 47.77% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $1.09 billion in assets under management and has an expense ratio of 0.46%.

In short, while MLPA does provide an investor with a way to profit from MLP companies, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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