A Friday Rally For Beleaguered MLP ETFs


Exchange traded funds and exchange traded notes tracking master limited partnerships rebounded Friday, recovering some of the ground lost in a recent drubbing that likely came courtesy of elevated fiscal cliff fears.

As the Federal Reserve has acted to keep interest rates low over the past several years in an effort to stimulate economic growth, MLPs have become a favorite asset class of income-starved investors. ETF issuers have responded to increased demand for MLP exchange-traded products by rolling out several new ETFs and ETNs over the past two years.

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MLPs are tax-efficient vehicles prized by investors for high yields and steadily rising dividends. Many MLPs pay dividends on a monthly basis, but it is the status of MLPs as dividend securities that has plagued the group in recent weeks.

MLPs have also been hit by fears about lofty valuations and speculation politicians, in an effort to generate much-needed government revenue, could revoke the special tax treatment that has made MLPs so appealing. The valuation concern is not new and it is one the asset class has previously shrugged off.

Currently, MLPs do not pay corporate taxes and dividends from these firms are not considered taxable income. Any move by politicians to unfavorably change MLP tax structure would likely be viewed as punitive to the asset class.

As fears of the fiscal cliff, which would include the expiration of Bush-era dividend tax cuts, have soared, MLP ETFs and ETNs have suffered. The JPMorgan Alerian MLP Index ETN (NYSE:AMJ), the largest MLP exchange-traded product by assets, had plunged 8.6 percent from November 7 through November 15. The ALPS Alerian MLP ETF (NYSE:AMLP) has not been a peach, either, with a loss of almost seven percent.

On Friday, buyers stepped into, sending some MLP ETFs and ETNs soaring. On better than double the average daily volume, AMJ was up over 3.3 percent in late trading. AMLP was higher by 1.8 percent on strong volume as well.

The Yorkville High Income MLP ETF (NYSE:YMLP), which has attracted $79 million in assets under management since its March debut, had 13.3 percent since November 7. YMLP is taking a small bite out of that loss today with a three percent gain on volume that is more than double the daily average.

The First Trust North American Energy Infrastructure Fund (NYSE:EMLP), which has proven to be among the sturdier MLP ETFs in recent weeks, gained 1.7 percent today on volume that was also better than double the daily average. On an anecdotal level, the First Trust North American Energy Infrastructure Fund paints the picture of just how popular MLP ETFs and ETNs are with investors. EMLP debuted in June and it has already eclipsed $103 million in assets under management, according to First Trust data.

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