Interest in the MLP corner of the energy market has been steadily rising as investors have embraced the exchange-traded product structure as the preferred means of tapping into this lucrative asset class. With interest rates expected to remain at historically low levels until late 2014 at the earliest, long-term investors are still concerned with beefing up their portfolio’s current income. As such, the new Global X MLP ETF (MLPA) is worth a closer look for cost conscious investors who wish to tap into a juicy dividend yield.
New York-based Global X entered the MLP ETFdb category when it rolled out MLPA on 4/19/2012. This ETF is linked to the SolactiveMLP Composite Index and has accumulated roughly $5.5 million in assets under management since debuting. With over half a dozen competitors in the space, MLPA separates itself from the rest through cost competition.
Under The Hood
Simply put, MLPA takes the cake when it comes to expenses. This ETF charges 0.45% in annual expense fees, placing it on the “very cheap” end of the cost spectrum considering that the industry average for MLP ETPs is 0.80%. Investors can now gain access to a basket of MLPs, virtually the same ones as included in all the other ETPs, for a fraction of the cost. In addition to beefing up Global X’s already diverse product lineup, the launch of MLPA also marks a major stride forward for cost competition in the ETF industry, which ultimately ends up rewarding investors.
MLPA is in direct competition with two other MLP ETFs, including the Alerican MLP ETF (AMLP) as well as the Yorkville High Income MLP ETF (YMLP). The bigger of the two competitors, AMLP, has accumulated an impressive $3.2 billion in assets under management since launching in August of 2010, which goes to show the tremendous amount of investor interest that this corner of the energy market has attracted. YMLP has also done well, seeing as how this ETF has accumulated close to $33 million in AUM since launching in mid-March of this year.
From a portfolio composition perspective, MLPA offers a compelling strategy for a cheaper price tag than the competition. The Global X ETF is comprised of 30 MLPs; exposure is fairly equally split between natural gas pipelines and petroleum transportation equities, although exposure to firms involved in exploration & production, refining & distribution, and coal production is also included [see MLPA Fact Sheet]. In fact, MLPA’s top ten holdings have a lot in common with AMLP’s portfolio; both of these ETFs make signfificant allocations to industry giants including Energy Transfer Partners (ETP), Plains All American Pipeline (PAA), Magellan Midstream Partners (MMP), Enterprise Product Partners (EPD), and Kinder Morgan Energy Partners (KMP).
MLPA offers an easy, and cheaper way, for investors to tap into a growing asset class. Energy infrastructure spending in North America is expected to continue rising in the foreseeable future, which means that MLPs stand to offer lucrative upside potential in addition to a historically stable stream of dividend distributions. This asset class is also regarded for offering low correlation to broad equity markets along with serving as a potential hedge against inflation.
All in all, this ETF is worth a closer look for anyone looking to enhance their portfolio’s current income while still keeping a close eye on expenses.
Disclosure: No positions at time of writing.
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Disclosure: No position at time of writing.