Global X Launches New MLP ETF

| August 7, 2013 | 0 Comments

Midstream energy infrastructure MLPsIn today’s world of low interest rates, investors are constantly on the hunt for high yielding investments.  They just can’t generate enough income with traditional sources like Treasuries, corporate bonds, and money markets. 

Investors have flocked to high dividend paying sectors like Master Limited Partnerships, or MLPs, in search of bigger payouts.  

Midstream energy infrastructure MLPs typically own things like pipelines, storage facilities, and other assets used to transport, store, gather, and process natural gas, crude oil, and other refined products.

MLPs operate like a toll road.  They make money based on the volume of resources transferred, not on the price of the commodity itself.   And they pay their investors required distributions from all of the “tolls” they collect every quarter.

Not surprisingly, ETF providers have been quick to launch new ETFs and their cousins ETNs (Exchange Traded Notes) focused on MLPs to fill this insatiable demand.

One of the drawbacks to ETFs that invest solely in MLPs is they must be structured as a C-Corp.  They are forced to pay taxes on the fund level and the investor is forced to pay taxes on any profits as well. 

This can result in deferred income taxes that can send the total operating expense of these ETFs above 3% per year.  That’s a big chunk of change…

ETF providers have sought to avoid these expenses by structuring funds that invest in MLPs as an ETN instead of an ETF.  ETNs don’t invest directly in the assets the index tracks so they can avoid the deferred income taxes that drive up the cost of many MLP ETFs. 

The new Global X MLP & Energy Infrastructure ETF (MLPX) also avoids the corporate income taxes that plague other MLP ETFs structured as a C-Corp.

How?

They only invest 25% or less of the fund’s assets directly in companies structured as MLPs.  The rest is invested in MLP affiliates and infrastructure companies that aren’t structured as MLPs.

This structure allows MLPX to offer an ETF with the benefits of the high yielding MLP industry without the added tax burden of a C-Corp.

What’s more, MLPX goes a step further with the ultra-low cost expense ratio of 0.45%.  That’s well below the industry average of 0.83%. 

The unique combination of a low cost MLP ETF that isn’t a C-Corp is certainly exciting.  And it could give Global X a leg up on the competition in the highly competitive MLP ETF space. 

Here’s the bottom line…

If you’re looking for an inexpensive way to add the dividend producing power of MLPs to your portfolio, take a look at MLPX.  

Good Investing,

Corey Williams

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Category: Dividend ETFs, ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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