For investors looking for long term income streams and rising distribution rates, few investments are more appealing than the better master limited partnership - MLP -- companies. However, investing in MLP shares/units comes with a pretty serious tax-filing hassle. One way to get MLP investment exposure without the tax filing issues is through closed-end funds with invest in MLP units.
There are a handful of closed end funds which invest primarily in publicly traded MLP companies. Here are the year-to-date share price returns, premium or discount to NAV and current distribution yields for Kayne Anderson MLP Investment Company (NYSE:KYN), Clearbridge Energy MLP Fund (NYSE:CEM), Tortoise MLP Fund (NYSE:NTG), Fiduciary/Claymore MLP Opportunity Fund, (NYSE:FMO), Nuveen Energy MLP Total Return Fund (NYSE:JMF), The Cushing MLP Total Return Fund, (NYSE:SRV) and MLP & Strategic Equity Fund (NYSE:MTP), from largest to smallest, respectively.
All fund data source from the Closed End Fund Association - CEFA - online database.
All of these closed end funds with one exception use 20% to 40% leverage to boost investment returns and the dividend yields. Only the MLP & Strategic Equity Fund does not use leverage. Note that MTP has the lowest distribution yield. However, this fund also has the lowest expense ratio at 1.20% of assets. On the other end of both the assets and expenses scale is Kayne Anderson MLP Investment Company. KYN sports a mind-boggling 4.9% expense ratio. It shows a level of market irrationality that this fund also trades at a 14% premium to NAV. Follow-up: After checking the Kayne Anderson website it appears interest expense may be included in the expense ratio. Still the fund does charge an above-average 2.4% management fee.
The funds with positive share price gains for the year have those gains primarily due to price over NAV premium expansion. MLP stocks are generally down so far in 2012, with the Alerian MLP index down 7.3% year-to-date - as of June 18. Yield king, The Cushing MLP Total Return Fund seems to be using a dividend capture strategy with a 240% annual portfolio turnover rate. The turnover for the other funds discussed here ranges from 19% to 46%.
The two funds which stand out as the best combination of dividend yield plus low expenses and share price premium are Clearbridge Energy MLP Fund and Nuveen Energy MLP Total Return Fund. CIM has been in existence since the 1970's and JMF since March 2011. The Clearbridge Energy MLP fund has been the better performer since that March date and will be noted here as the current best value for a MLP focused closed-end fund.