AMLP: A Better Idea for MLP Investing

Aug.29.10 | About: ALPS Alerian (AMLP)

I currently own Kayne Anderson MLP Inv Co (NYSE:KYN). At different times I have been long or short this closed end fund. It has a nice 7.4% yield and avoids the messy K-1 reports that come from direct MLP (master limited partnership) ownership. KYN has been so good for its manager that there have been copy cat IPOs this year, including CEM (ClearBridge) and NTG (Tortoise) within the last 90 days.

There are around 10 existing funds of this type, and most have common traits. They use leverage to boost yield, they avoid K-1s, they have annual expenses around 2%, and they sell at PREMIUMS to net asset value (NAV).

Now, there is a better alternative from Alerian, the creator of the MLP Index: The Alerian MLP ETF (exchange traded fund), AMLP.

AMLP started trading this week at a price of $15, which represented the NAV. No premium. There is already an exchange traded note issued by JP Morgan Chase on the index which yields 5.6% (NYSEARCA:AMJ). I greatly prefer to own the ETF. (Apologies for the alphabet soup.)

I also prefer the .85% management fee to the 2%+ charges from the various closed end funds. And, I especially prefer no leverage in this market. KYN and other MLP funds also do equity offerings, which periodically knock the price down.

So here is the better idea:

  • No premium...
  • No leverage...
  • Lower expenses...

Disclosure: Author is long AMLP and KYN