Seeking Alpha

Ron Rowland

View as an RSS Feed
View Ron Rowland's Comments BY TICKER:
Latest  |  Highest rated
  • EGShares Sticking Shareholders With Cost Of Closing 12 ETFs [View article]
    Representatives of EGA contacted me to inform me that although shareholders remaining in the funds will bear the costs of closing, those costs will not exceed the annual expense ratio cap of 0.85%.
    Sep 10 12:31 PM | Likes Like |Link to Comment
  • MLPX: New Global X ETF Not An MLP ETF [View article]
    Not sure what you mean by "suitable". All ETFs and ETNs can be held IRAs. If you are referring to the UBIT that is associated with holding MLPs directly, that is not an issue when the MLPs are wrapped inside of an ETF or ETN.

    MLPs are tax-sheltered investments to begin with. You are much much better off holding them in a taxable account. Holding them in an IRA or in a C-corp (like MLP ETFs do) destroys their tax-efficiency.

    EMLP has significantly underperformed MLP ETNs. Its performance has been more closely aligned with the AMLP C-corp performance. My belief is that it is due to the tax drag - in one case (AMLP) it comes from the fund structure, from the other (EMLP) it comes from holding taxable C-corps. Neither gives you untaxed MLP exposure.
    Sep 9 12:55 PM | 1 Like Like |Link to Comment
  • MLP ETF Expenses Hit The Fan [View article]
    All of the MLP ETFs and ETNs are indexed. MLPN is based on the Cushing 30 MLP Index, which happens to be equal weighted and therefore weights some of the smaller MLPs more heavily than the various Alerian indexes.
    Sep 8 12:17 PM | 1 Like Like |Link to Comment
  • MLPX: New Global X ETF Not An MLP ETF [View article]
    I think it was only AMLP's 6th consecutive increase (plus its only been in existence for 3 years = 12 quarters).

    Even holding until you die, your distributions will become taxable to you after about 14 years once your cost basis goes to zero. Your heirs will likely be eligible for a step-up in basis, even though it could be lagging its index by 140% after 20 years (assuming the 7% per year lag continues).
    Sep 2 02:50 PM | 1 Like Like |Link to Comment
  • MLPX: New Global X ETF Not An MLP ETF [View article]
    "Question: Does this ETF pay corporate income taxes on distributions the are Return of Capital?"

    Answer: Eventually, but not in the current year. AMLP's current "reported" expense ratio of 11.73% does not include any taxes paid on the ROC distributions it received. However, since the ROC reduces the cost basis, the tax liability is merely deferred until time of sale (not tax free) to the best of my knowledge. Additionally, once the cost basis of any MLP holding reaches zero, then all future ROCs received will be taxable in the year received.

    Yes, you are getting a 6% yield, but if you read my other article, then you are aware that it is costing you more than that in the capital appreciation it is taking from you.
    Sep 1 11:42 AM | 2 Likes Like |Link to Comment
  • MLPX: New Global X ETF Not An MLP ETF [View article]
    No. Funds like MLPX (whether ETFs, CEFs, or Mutual Funds) that keep their MLP holdings to 25% or less do not pay any taxes at the fund entity level.

    However, MLPX's other 75% of holdings are C-corps that do pay taxes while the MLPs constituting 25% of the portfolio do not. Therefore, you as an MLPX (or any 25/75 fund) shareholder have double-taxation on 75% of your position and single-taxation on 25%. This is nothing new, even though the MLPX marketing makes it sound like it is.
    Sep 1 11:27 AM | 1 Like Like |Link to Comment
  • Market Vectors Russia Small-Cap ETF Now Trading [View article]
    Yes, this is troublesome from a number of perspectives:
    1) Quindell does not fit their requirement of being "incorporated in Russia, or that generate the majority of their revenue in Russia."
    2) The underlying index does not contain Quindell
    3) Van Eck stated their management strategy for this fund is "replication" which is incorrect if the index and holdings do not match

    It could be the result of a typo in RSXJ's holdings, but whatever it is, Van Eck has some explaining to do.
    Aug 29 05:11 PM | Likes Like |Link to Comment
  • Checking In On The MLPI / AMLP Taxman Trade [View article]
    Although TYG currently has a 21.75% expense ratio, it does not make for a good tax arbitrage vehicle. TYG's most recently published quarterly report [ ] shows expenses of 21.75%:
    01.72% management & operations
    01.85% leverage fees
    18.18% income taxes
    21.75% total expenses

    Its performance over the period above of +64.5% cumulative return is close to that of MLPI's +66.0%. However, TYG's volatility is about 45% higher because TYG uses leverage in an attempt to mask the effects of its tax drag.

    TYG is actively managed and therefore has much lower correlation of .76 to AMLP and .72 to MLPI. The much higher volatility and much lower correlation make it less attractive as a tax arbitrage pairs trade.

    I believe the MLPI/AMLP combination described in the article makes for a much better combination as they track the same index and have produced a correlation of .977 the past 3 years.
    Aug 29 04:50 PM | 1 Like Like |Link to Comment
  • Checking In On The MLPI / AMLP Taxman Trade [View article]
    Correct. In a Roth, you start with after-tax dollars and avoid taxes on withdrawal. Therefore, using the same 40% tax rate assumption, your initial after-tax investment in each would be 60 cents on the dollar. After the past 3 years, the value of your account placed in MLPI would again be 99.6 cents versus 84.7 cents for AMLP (isn't it wonderful when math provides a cross-check).
    Aug 28 11:33 AM | 1 Like Like |Link to Comment
  • Checking In On The MLPI / AMLP Taxman Trade [View article]
    Yes, there is a distinction when held in an IRA. The above performance is based on the ETF/ETN entity-level performance, independent of whether they are held in a taxable or non-taxable account.

    Inside an IRA, the only thing that should matter to you is total return, because everything (original contribution, capital gains, dividends, distributions) will be taxed the same on withdrawal - as ordinary income.

    Therefore, it becomes a direct comparison of the 66% MLPI return versus the 41% AMLP return. If both are taxed at 40% upon withdrawal from your IRA, then you will be left with 99.6 cents (1.66 x .60) of every dollar you contributed after paying taxes put in if you had invested it in MLPI. Had you invested it in AMLP, you would only get back 84.7 cents (1.411 x .60) after taxes.

    Which begs the question - why do you want to put nice tax-friendly MLPs into an IRA and then have to pay taxes on them upon withdrawal?
    Aug 28 09:38 AM | 3 Likes Like |Link to Comment
  • MLPX: New Global X ETF Not An MLP ETF [View article]
    I have not performed any due diligence on TTG, but if it keeps its MLP holdings to less than 25%, then yes, it should be able to avoid the fund-level entity tax. However, keep in mind that 75% of the holdings are still paying corporate taxes instead of the fund itself.
    Aug 28 09:24 AM | Likes Like |Link to Comment
  • Apple Could Shake Up Popular Buyback ETF [View article]
    The way I interpret the Nasdaq Buyback Achievers Index rules are that the 12-month period only applies to the just completed calendar year since the Index is only reconstituted once per year in January.

    Therefore, for Apple to be added, it must reach the 5% threshold by the end of the year. So, it is based on what they do in the next 4 months instead of the next 18 months. Of course, if it misses the January 2014 reconstitution, there is always 2015.

    As part of its reconstitution and rebalancing operations, the underlying index caps each security at 5%.
    Aug 22 02:45 PM | Likes Like |Link to Comment
  • MLP ETF Expenses Hit The Fan [View article]
    I think you lost me, but I'll try to address some of your specific questions.

    I cannot determine if your C-corp questions apply to a C-corp ETF or to a C-corp general partner. For C-corp ETFs, they claim their distributions are mostly tax-deferred return of capital. For C-corp general partners, I do not know what the distributions consist of.

    I don't understand why you would want to take one of the most tax-advantaged vehicles in the world (MLPs) and place them into a tax-deferred account where everything including your original purchase will get taxed as ordinary income on withdrawal. Inside of an IRA, your goal should be to maximize total return since everything is taxed identically.

    Your statements regarding UBIT are incorrect. Neither MLP ETFs nor MLP ETNs are subject to potential UBIT tax liabilities if held in an IRA.

    The MLP ETF is the entity that "directly" suffers the added expense of the taxes. The MLP ETF shareholders pay it "indirectly" via 8% a year reduction in the ETF's NAV (taxed once). Then, as a MLP ETF shareholder, you eventually pay taxes on all capital appreciation and all distributions you receive when you sell (taxed twice).
    Aug 20 10:15 AM | 1 Like Like |Link to Comment
  • MLP ETF Expenses Hit The Fan [View article]
    I have no idea what Jim Cramer and other SA authors have been telling you.

    KMI is a C-corp, and like all C-corps, it generates tax liabilities. For 2Q13, the figures look like this (in $millions):

    1,006 Income before taxes
    - 225 Income Tax expenses
    781 Net Income

    Here is the Q2 earnings report:

    The 22.3% effective tax rate suggests that a portion of their pre-tax income was non-taxable.
    Aug 19 03:05 PM | Likes Like |Link to Comment
  • MLP ETF Expenses Hit The Fan [View article]
    Johnny, yes, it is really that bad.

    AMLP lags its index by 31% since inception and more than 9% ytd (after just 7 months). Don't take my word for it, here is the link to AMLP's own website performance page:

    KMI is a C-corp and is subject to the same taxes as a C-corp MLP ETF. If you own MLPs directly, then the only taxes paid are by you the MLP shareholder (single level taxation).

    If you place a C-corp between you and the MLPs (either a MLP C-corp ETF or a C-corp general partner), then it introduces another level of taxes and doesn't relieve you of any taxes other than the fact your taxable gains have already been reduced by the first layer of taxation (double taxation).

    And yes, I expect this to be the subject of a class action suit one day - not because the ETFs are stealing money, but they appear to be enriching themselves by marketing themselves as "access to tax-efficient MLPs" in order to attract AUM (and increase their associated management fees) while failing to make adequate disclosure about 1) what they are doing , 2) how they are doing it, and 3) the financial impact to shareholders.
    Aug 19 09:13 AM | 5 Likes Like |Link to Comment