Seeking Alpha

Benjamin Shepherd

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  • MLPs Become More Attractive As Markets Sell Off [View article]
    I appreciate the comment and don't find it confrontational at all.

    I think investors would generally be best served by owning individual MLPs so that they can take advantage of the tax benefits. However, there are many folks out there who either don't feel comfortable selecting individual MLPs on their own, only invest in tax-advantaged accounts where MLPs could potentially cause complications, or for whatever reason don't want them individually. In cases such as those, funds make sense.

    I agree that there are structural disadvantages to packaging MLPs in a traditional ETF, C-Corp wrapper. As you point out, just look at a chart of AMLP compared to any of the MLP exchange-traded notes (ETN). Because of that, when I've recommended MLP-focused funds in the past, I've generally preferred the ETN structure to traditional ETFs because ETNs largely sidestep those problems. In fact, I still recommend an MLP ETN in one of the newsletters to which I contribute to.

    The issue that we're running into now though is that most of the ETNs are backed by banks with heavy European exposures and could run into problems in the event of a recapitalization or default. If a bank backing an ETN defaults, investors in that ETN have no recourse for recovering any of their money since ETNs are generally backed by junior debt agreements. Investors in traditionally structured ETFs do have claims on real assets however.

    I don't foresee any ETNs going bust due to backer insolvency in the near term, but its the events you don't foresee that bite you. As a result, I think in the current environment it may best to give up some top line returns in order to avoid the credit risk inherent in ETNs.
    Sep 22 01:17 PM | 1 Like Like |Link to Comment
  • MLPs Become More Attractive As Markets Sell Off [View article]
    I don't expect the government to pursue tax changes for MLPs. For one, the tax base is too small to justify the time, effort and expense any changes would entail. Also, changing their tax status would also stymy much needed investment in our nation's energy infrastructure by MLPs -- they're in the best position to make those investments -- which would run contrary to the Obama Administration's professed energy policy.
    Sep 22 10:49 AM | 2 Likes Like |Link to Comment
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