Global X, the New York-based ETF sponsor known for its lineup of unique sector and commodities ETFs, added another fund focused on master limited partnerships Tuesday with the debut of the Global X Junior MLP ETF (NYSEARCA:MLPJ).
The Global X Junior MLP ETF is the firm's second MLP ETF after the Global X MLP ETF (NYSEARCA:MLPA), which debuted in April 2012 and now has over $25.8 million in assets under management.
MLPJ, which has an annual expense ratio of 0.75 percent, will track the Solactive Junior MLP Index. That index is home to 25 stocks and devotes almost 44 percent of its weight to exploration and production names. Another 39.5 percent of its weight goes to energy transportation and storage firms while 13.4 percent is allocated to refining and distribution names, according to the ETF's fact sheet.
Top holdings in the index include Suburban Propane Partners (NYSE:SPH), newly public Northern Tier Energy (NYSE:NTI), Alliance Resource Partners (NASDAQ:ARLP), TC PipeLines (NYSE:TCP) and Natural Resource Partners (NYSE:NRP).
MLP exchanged traded products include the JPMorgan Alerian MLP ETN (NYSEARCA:AMJ), the Alerian MLP ETF (NYSEARCA:AMLP) and the Yorkville High Income MLP ETF (NYSEARCA:YMLP) have been embraced by income-hungry investors. AMLP had almost $4.8 billion in assets as of January 14 while YMLP has raked in almost $107 million in AUM in just 10 months of trading.
MLPJ will likely carry on the tradition of high-yielding MLP exchange-trade products as its top holdings sport some impressive yields. For example, Suburban Propane yields 8.2 percent while Northern Tier currently yields a whopping 24.1 percent. Alliance Resources and Natural Resource Partners yield 6.8 percent and 10.5 percent, respectively.
MLPJ will pay quarterly income distributions and is eligible to be included in retirement accounts such as IRAs and 401(k) plans.
Investors should note an often overlooked aspect to MLP exchange-traded products. That being tax treatment of these funds can lead to increased expenses. ETFs such as AMLP and YMLP are structured as C-corporations, meaning investors are subject to the 35 percent corporate federal income tax, plus some state taxes.
Traditional ETFs do not expose investors to entity-level tax liabilities, but the structure of some MLP funds means investors face higher expenses than just the stated expense ratio. For example, AMLP's web site shows a management fee of 0.85 percent for that fund, but total operating expenses of 4.86 percent, which is extremely high by the standards of ETFs.
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