The quantity of ETNs on Deathwatch has nothing to do with the credit worthiness of the issuer or the efficiency of the arbs.
It is based solely on AUM and trading volume. The criteria for getting on and off of ETF Deathwatch is totally objective and is detailed here: http://bit.ly/JzYn0K
June Historical Sector Analysis: Weak! [View article]
Assuming equal allocations in your four picks for June, the historical return has been +0.20%, and that's assuming your stated -0.02% return for the S&P includes dividends. If dividends weren't included, then your +0.20% historical gain just disappeared.
MLPA: Another C-Corp. Double Taxation ETF [View article]
The deferred tax liability can remain on the C-corp's books for an extended, but is not part of the NAV calculation and is therefore not on the "shareholder's books".
Viewing it as a "constant" discount is not correct. On it's first day of trading, the deferred liability was $0 and your "discount" was 0%. After 1 year, your "discount" was about 6%. After 2 years, your "discount" was about 12%.
How does the investor that bought the fund at inception and sold two years later ever going to recapture this "12 discount"? The answer is - he can't. He can't because the fund is changing the deferred tax liability every day by clipping about 37.5% off of the daily index change to compute the NAV change.
Thanks, I think you proved my point that these C-corps disguised as ETFs need to do much more disclosure because shareholders do not understand what is going on.
ETF Deathwatch May 2012: Nasdaq Tries To Help [View article]
Yes, the market (supply, demand, liquidity, arb activities) sets the price. I think you might be confusing "price" and "NAV". The "price" is not guaranteed to track anything and will be determined by market forces. The "NAV" will accurately track the index minus expenses. The issuing bank has no control over the "price of the index" as you mention.
TORTX and TORIX intend to invest less than 25% of their assets directly into MLPs in an attempt to avoid the C-corp classification. Note that TORTX has a 5.75% front-end load.
From the prospectus: Investment Company and RIC Compliance Risk. The Fund may be subject to increased expenses and reduced performance as a result of its investments in other investment companies and MLPs. When investing in other investment companies, the Fund bears its pro rata share of the other investment company’s fees and expenses including the duplication of advisory and other fees and expenses. The Fund’s investment in MLPs presents unusual challenges in qualifying each year as a “regulated investment company” (a “RIC”) under the Internal Revenue Code, which allows the Fund to avoid paying taxes at regular corporate rates on its income. If for any taxable year the Fund fails to qualify as a RIC, the Fund’s taxable income will be subject to federal income tax at regular corporate rates. The resulting increase to the Fund’s expenses will reduce its performance and its income available for distribution to shareholders.
ETF Deathwatch May 2012: Nasdaq Tries To Help [View article]
Like ETFS, ETNs also have a creation/redemption mechanism. Without sufficient volume, they would suffer from the same inability to arb the price to NAV.
Issuers of both ETFs and ETNs have no stake in the volume. For them, only AUM matters. They would be perfectly happy with a product that had $1 billion AUM that seldom traded.
Thanks alesmith_, you beat me to it. MLPA is only cheap if you ignore its tax liability, which shareholders see the effect of daily, but because of a loophole that expense won't show up in the expense ratio until after MLPA starts actually making those tax payments.
MLPA: Another C-Corp. Double Taxation ETF [View article]
There is credit risk with ETNs, but analysts and the media tend to blow that risk way out of proportion. AMLP has lagged MLPI (which both track the same index) by 5.5% per year since inception.
An IRA basically cannot tell the difference between capital gains and yield gains (both are taxed the same on withdrawal), so you might as well consider that 5.5% a reduction in yield for AMLP.
Yes, I will take the credit risk for an additional 5.5% per year.
Newsflash: The Dividend Aristocrats Found The Lost Decade [View article]
I think calpern's question relates more to survivor bias than the fact the list did not exist in 2000. Given that it is a rules-based list, it is possible to reconstruct one for 2000. Unless I am missing something, this analysis is based only on the current list, also known as the survivor's list.
MLPA: Another C-Corp. Double Taxation ETF [View article]
You still have a double-taxation problem. First, you are buying the fund with after-tax dollars. Assuming a tax rate of 25%, that leaves you with $0.75 of every dollar to put into these. Then they will levy a 35% corporate tax on all their capital gains and taxable income, further reducing your effective return.
In a Roth, it is usually in your best interest to maximize your total return. MLPs are designed to be a tax-advantaged investment, which means they are typically best suited for taxable accounts. Putting tax-advantaged vehicles inside of a tax-advantaged wrapper (IRA) usually leads to non-productive tax-advantaged redundancy (aka lower total after-tax return).
There may be a scenario where it makes sense, but I can't think of one right now.
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
I'm simply going to take your money and return 10% of it each year (a 10% annual return of capital distribution). Since that 10% per year is all you will receive, at the end of 10 years you will have no gain and therefore no tax liability.
This was intended only to illuminate the fallacy of placing too much emphasis on distributions instead of total return.
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
If you do not see the 8.5% per year tax-drag as a downside, then you cannot be convinced.
If all you care about is income, then I have a much better deal for you. Give me $1 million and I will give you a 10% return of capital every year for 10 years. These will be totally tax-free distributions, not tax deferred like AMLP's distributions.
ETF Deathwatch For April 2012: 308 And Climbing [View article]
I agree that BDCS is based on a great concept. If it were to be offered in an ETF wrapper, then it would likely draw more investor attention.
Yes, BDCL (the 2x version) has about 4 times the AUM of BDCL and daily traded value about 10 times higher, which keeps it comfortably off of deathwatch.
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
Not sure what your definition of "not by that much" is, but from the inception of AMLP (8/25/10 - 4/20/12), AMLP has an annualized total return of 13.8%.
Meanwhile, AMJ returned 18.9% over the same period (5.1% per year better). Said another way AMLP has produced 73% of AMJ's returns. Keep in mind that they are tracking different indexes.
MLPI tracks the same index as AMLP. During this same time period it has posted a 20.4% annualized return (6.6% per year better than AMLP).
Are JPMorgan Chase ETNs Safe? [View article]
It is based solely on AUM and trading volume. The criteria for getting on and off of ETF Deathwatch is totally objective and is detailed here:
http://bit.ly/JzYn0K
June Historical Sector Analysis: Weak! [View article]
MLPA: Another C-Corp. Double Taxation ETF [View article]
Viewing it as a "constant" discount is not correct. On it's first day of trading, the deferred liability was $0 and your "discount" was 0%. After 1 year, your "discount" was about 6%. After 2 years, your "discount" was about 12%.
How does the investor that bought the fund at inception and sold two years later ever going to recapture this "12 discount"? The answer is - he can't. He can't because the fund is changing the deferred tax liability every day by clipping about 37.5% off of the daily index change to compute the NAV change.
Thanks, I think you proved my point that these C-corps disguised as ETFs need to do much more disclosure because shareholders do not understand what is going on.
ETF Deathwatch May 2012: Nasdaq Tries To Help [View article]
MLPA Is The Cheapest MLP ETF [View article]
From the prospectus:
Investment Company and RIC Compliance Risk. The Fund may be subject to increased expenses and reduced performance as a result of its investments in other investment companies and MLPs. When investing in other investment companies, the Fund bears its pro rata share of the other investment company’s fees and expenses including the duplication of advisory and other fees and expenses. The Fund’s investment in MLPs presents unusual challenges in qualifying each year as a “regulated investment company” (a “RIC”) under the Internal Revenue Code, which allows the Fund to avoid paying taxes at regular corporate rates on its income. If for any taxable year the Fund fails to qualify as a RIC, the Fund’s taxable income will be subject to federal income tax at regular corporate rates. The resulting increase to the Fund’s expenses will reduce its performance and its income available for distribution to shareholders.
ETF Deathwatch May 2012: Nasdaq Tries To Help [View article]
Issuers of both ETFs and ETNs have no stake in the volume. For them, only AUM matters. They would be perfectly happy with a product that had $1 billion AUM that seldom traded.
MLPA Is The Cheapest MLP ETF [View article]
MLPA: Another C-Corp. Double Taxation ETF [View article]
An IRA basically cannot tell the difference between capital gains and yield gains (both are taxed the same on withdrawal), so you might as well consider that 5.5% a reduction in yield for AMLP.
Yes, I will take the credit risk for an additional 5.5% per year.
Newsflash: The Dividend Aristocrats Found The Lost Decade [View article]
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
MLPA: Another C-Corp. Double Taxation ETF [View article]
In a Roth, it is usually in your best interest to maximize your total return. MLPs are designed to be a tax-advantaged investment, which means they are typically best suited for taxable accounts. Putting tax-advantaged vehicles inside of a tax-advantaged wrapper (IRA) usually leads to non-productive tax-advantaged redundancy (aka lower total after-tax return).
There may be a scenario where it makes sense, but I can't think of one right now.
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
This was intended only to illuminate the fallacy of placing too much emphasis on distributions instead of total return.
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
If all you care about is income, then I have a much better deal for you. Give me $1 million and I will give you a 10% return of capital every year for 10 years. These will be totally tax-free distributions, not tax deferred like AMLP's distributions.
ETF Deathwatch For April 2012: 308 And Climbing [View article]
Yes, BDCL (the 2x version) has about 4 times the AUM of BDCL and daily traded value about 10 times higher, which keeps it comfortably off of deathwatch.
Alerian MLP Makes Tax Payment, Raises Expense Ratio [View article]
Meanwhile, AMJ returned 18.9% over the same period (5.1% per year better). Said another way AMLP has produced 73% of AMJ's returns. Keep in mind that they are tracking different indexes.
MLPI tracks the same index as AMLP. During this same time period it has posted a 20.4% annualized return (6.6% per year better than AMLP).