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■ I invest primarily in master limited partnerships (MLPs) and real estate investment trusts (REITs), as I believe these asset classes provide me with the best chance to beat the market and earn the return necessary to meet my investing goal. However, I do sprinkle in some exposure to the... More
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  • Huge Drop In BP Prudhoe Bay Trust (NYSE: BPT) - Is Another Big Drop Coming?

    On August 29, 2012, BP Prudhoe Bay Royalty Trust (NYSE: BPT) dropped an astonishing 17.86% in a single day to less than $78 per unit. Even more startling, BPT traded at $120 only twelve days prior. All in, BPT has experienced a massive drop of $43.23, or 36%, in only twelve days. This drop surprised a lot of holders of BPT units and left them searching for answers. What could possibly explain the drop? Even more importantly, are the wild price swings over or could the price plunge even further in the near future?

    I can answer these questions. In fact, I answered them more than a year ago. On February 10, 2011, I wrote a two-part article about BPT. You can view the article here:

    In these articles, I analyzed the potential future distributions to be made by the trust over the remaining lifetime of the trust under three scenarios, which I characterized as "pessimistic," "moderate" and "optimistic." Each scenario used a different assumption about future increases in the price of oil and inflation. My conclusion in all three scenarios was that BPT, which was trading for about $115 at the time, was massively overvalued.

    Mine was hardly the only warning. Others performed similar analyses, and each came to the same conclusion. Read some of them here and here. And yet the price of BPT units did not go down. In fact, as mentioned above, the price actually went UP! How could this possibly be, I wondered.

    How Could the Market Have Taken So Long To Recognize that BPT was Vastly Overvalued?

    Most agree that the market, though far from perfect, is generally pretty good at setting asset prices. How could the market misunderstand not only the effect that an inevitable rise in Adjusted Chargeable Costs (described in my 2011 article) will have on future distributions but also the levered relationship between BPT's unit price and the price of oil?

    My working theory has been that BPT has historically paid, and continues today to pay, extremely high distributions. At the beginning of this week, the backward-looking distribution rate was nearly 10% per year and is now significantly higher. Additionally, BPT has posted staggeringly high historical returns. Each of these facts makes BPT extremely appealing to dividend-seeking individual investors, particularly those investors who pick stocks primarily on the basis of dividend yield. The failure of these investors to dig deeper in their analysis was a huge mistake.

    But individual investors are not always the most savvy bunch. The critical mistake such investors appear to make with respect to BPT is to assume that the "headline" distribution rate (i.e., 9%) is actually a true dividend. Depending on one's assumptions about future oil prices and inflation, however, most, and potentially all, of the distributions paid by BPT are not dividends at all; rather, they are a return of capital.

    I believe that, in this yield-starved environment, the due diligence performed by many of these investors starts -- and stops -- at the fat distribution rate. This is a huge mistake. Put another way, BPT is held by a tremendous number of "yield pigs" of the type that Seth Klarman described in the book Margin of Safety, excerpted below.

    There are countless examples of investor greed in recent financial history. Few, however, were as relentless as the decade-long "reach for yield" of the 1980s. Double-digit interest rates on U.S. government securities early in the decade whetted investors' appetites for high nominal returns. When interest rates declined to single digits, many investors remained infatuated with the attainment of higher yields and sacrificed credit quality to achieve them either in the bond market or in equities. Known among Wall Streeters as "yield pigs" (or a number of more derisive names), such individual and institutional investors were susceptible to any investment product that promised a high rate of return. ...

    Junk bonds were not the only slop served up to the yield pigs of the 1980s. Wall Street found many ways to offer investors an enhanced current yield by incorporating a return of the investors' principal iinto the reported yield. "Ginnie Maes" ... are one such example. ... Every month owners of GNMAs receive distributions that include both interest income and small principal repayments. The principal portion includes contractual payments as well as voluntary prepayments. Many holders tend to think of the yield on GNMAs in terms of the total monthly distribution received. The true economic yield is, in fact, only the interest payments received divided by the outstanding principal balance. The principal component of the monthly distributions is not a yield on capital, but a return of capital. Thus investors who spend thentire cash flow are eating into their seed corn.

    (Emphasis added)

    Sound familiar? Today, even more than the 1980s, individual investors are starved for yield. Since risk free securities offer virtually no yield whatsoever, the Fed has forced these investors to seek yield from riskier assets. Today's yield pigs are pouring into all sorts of investments that they don't fully understand and shouldn't be investing in, including BPT. These yield pigs are focused so much on the distribution rate (which Yahoo! Finance temptingly lists right under the stock price) that many have performed little to no diligence regarding, among other things, the amount of future distributions that this trust will make. Seemingly, their one and only source of information -- the distribution yield, which is a backward-looking indicator only -- has not changed a bit. "Yes, oil prices may drop. However, if that's my biggest risk then why would I ever sell? It will still be a great yielder, won't it?" they probably asked themselves.

    But this week's 36% drop in the price of BPT has proved the folly of making an investment decision without understanding fully exactly what you're buying.

    Why Another Big Drop Could Be Just Around the Corner

    Let's now examine the second question I posed above, namely whether another big drop may be in store for BPT unitholders in the near future.

    Some BPT holders probably think that this week's sell-off is an overreaction. That it's only a matter of time until BPT is back at $120. And maybe they'll be right. I don't have a crystal ball.

    But I'd like to offer a word of caution to anyone who holds this belief. In fact, I would like to share with them the same message that I shared a year and a half ago - under all but the most optimistic assumptions, BPT is still extremely overvalued. Under my "moderate" scenario (which you can read about below), BPT should be trading at around $70 per unit - meaning the price could drop by another 10% from here.

    And what if you have more pessimistic assumptions? Under the "pessimistic" scenario described in my original article, BPT should trade at around $57 per unit - which would equate to a staggering 26% drop from today's closing price! Buyer beware.

    A Blast From the Past - BPT Buyers Beware Further Drops

    I've pasted below my value estimates from February 2011 so that you can make your own judgment about what the future holds for BPT's unit price.

    --------

    Now that we've run through the adjustments I've made to reflect higher reserves, lower production declines, a potentially longer life for the trust, and potentially higher (perhaps much higher) future oil prices, and now that we understand Adjusted Chargeable Costs and production taxes, we've got everything we need to estimate the fair value for BPT units. I calculated BPT's approximate value (I will spare you the math) under the following scenarios:

    • Scenario #1 ("pessimistic"): Low growth in oil prices (2.5% annually) and moderate inflation (4% annually)
    • Scenario #2 ("moderate"): Moderate growth in oil prices (3.5% annually) and low inflation (2.5% annually)
    • Scenario #3 ("optimistic"): High growth in oil prices (5% annually) and low inflation (2.5%)

    Note that, as previously discussed, all three of my scenarios use WTI oil prices that are significantly higher than the prices Mr. Lewis used when he calculated the per unit value of BPT at $40.85. Under my "pessimistic" scenario, WTI oil prices will break $100 per barrel in 2015 and will be at approximately $130 by 2025. Under my "moderate" scenario, WTI oil prices will break $100 per barrel in 2014 and will be nearly $150 by 2025. Under my "optimistic" scenario, WTI oil prices will break $100 per barrel in 2013 and will be nearly $180 in 2025.

    Value of BPT under each scenario

    After estimating future production and then deducting "Adjusted Chargeable Costs" and production taxes, I calculated the price at which BPT units would have to be trading in order for an investor to earn a 10% rate of return on his (or her) investment under each of the three scenarios discussed above.

    And I was absolutely shocked by the results.

    Pessimistic scenario

    The chart below illustrates the annual distributions that a BPT investor would receive from now until the termination of the trust under the pessimistic scenario (2.5% annual growth in oil prices, 4% annual inflation):

    Source: BPT annual reports filed with the SEC and author's calculations based on an assumed inflation rate of 4.0% annually and an assumed increase in oil prices of 2.5% annually through 2027.

    Under the pessimistic scenario, the total distributions paid out between now and the trust's termination in 2027 would be between $98.66 and $100.25. Remember, though, that you won't receive most of that money for years down the road. I therefore calculated the price at which BPT units would have to be trading today in order for an investor to earn a 10% rate of return on his (or her) investment. The answer? Between $56.98 and $57.84 per unit. Under the pessimistic scenario, BPT units are currently about 50% overvalued.

    Moderate scenario

    The chart below illustrates the annual distributions that a BPT investor would receive from now until the termination of the trust under the moderate scenario (3.5% annual growth in oil prices, 2.5% annual inflation):

    Source: BPT annual reports filed with the SEC and author's calculations based on an assumed inflation rate of 2.5% annually and an assumed increase in oil prices of 3.5% annually through 2037.

    Under the moderate scenario, the total distributions paid out between now and the trust's termination in 2036 would be between $147.61 and $153.32. Remember, again, that you won't receive most of that money for years down the road. I therefore calculated the price at which BPT units would have to be trading today in order for an investor to earn a 10% rate of return on his (or her) investment. The answer? Between $69.35 and $70.97 per unit. Under the moderate scenario, BPT units are currently about 38% overvalued.

    Optimistic scenario

    The chart below illustrates the annual distributions that a BPT investor would receive from now until 2040 under the optimistic scenario (5.0% annual growth in oil prices, 2.5% annual inflation):

    Source: BPT annual reports filed with the SEC and author's calculations based on an assumed inflation rate of 2.5% annually and an assumed increase in oil prices of 5.0% annually through 2060.

    Under the optimistic scenario, the total distributions paid out between now and the time BP anticipates ceasing production in Prudhoe Bay in 2060 would be between $395.42 and $489.93. It is important to note, though, that you won't receive much of the distributions for 30, 40, or even 50 years from today. I therefore calculated the price at which BPT units would have to be trading today in order for an investor to earn a 10% rate of return on his (or her) investment. The answer? Between $85.13 and $89.15 per unit. Under the moderate scenario, BPT units are currently about 23% overvalued.

    How could this possibly be? As you've probably surmised, the limiting factor - the factor that will cause the trust to terminate, at which time the unit price will go to zero - is not reserves. It is not production declines or oil prices. Rather, the culprit is enormous future increases in "Adjusted Chargeable Costs" that are deducted from each barrel of oil produced in the future. These costs are deducted before BPT holders get a single penny in distributions. As these costs increase (and, as we've seen, they will increase rapidly), the amount left over to be paid out to BPT holders will quickly diminish until, ultimately, nothing is left. Even worse, the enormous increases in "Adjusted Chargeable Costs" are contractually fixed and therefore cannot be changed, and practically no amount of oil reserves or increases in oil prices will be enough to overcome them.

    And so, after reviewing the results that I've just shared with you, I reluctantly sold all of my units in BPT. Unfortunately, the reality is that BPT may be overvalued by as much as 50%. Considering the facts that (NYSE:I) over the coming years the distributions will fall significantly and eventually be $0 and (ii) eventually the unit price will also go to $0, there is just no way to justify the price at which BPT is currently trading (even, as I've shown, if oil prices soar to $200 per barrel or higher).

    So when will BPT investors realize that this is overvalued (at which time, presumably, the price will correct)? My guess is that many retail investors blindly purchase BPT units because (1) it currently pays a high distribution and (2) they have some belief that oil prices will go up in the future and BPT will allow them to reap the rewards of such increases. After all, if the trust were fairly valued as described above, then it would have an enormous yield well in excess of 10%. This would undoubtedly bring in "dividend hunters" as buyers, pushing the price back up. What these investors fail to realize, however, is that a large portion (or, in the case of the "pessimistic" scenario above, virtually ALL) of the distributions paid by BPT are effectively a return of capital and not a distribution at all.

    The bottom line: Would you give someone $114 of your money today if they promised to pay you back a total of $100.25 over the course of the next 15 years (but not the original $114 that you paid to them)? If not, and if you believe the "pessimistic" scenario described above best reflects your view of oil prices and inflation in the future, then you might consider looking for investments other than BPT because that is effectively the "bargain" you're striking when you buy BPT at today's prices.

    Would you give someone $114 of your money today if they promised to pay you back a total of $153.32 over the course of the next 24 years (but, again, not the original $114 that you paid to them)? If not, and if you believe the "moderate" scenario described above best reflects your view of oil prices and inflation in the future, then you might consider looking for investments other than BPT because that is effectively the "bargain" you're striking when you buy BPT at today's prices. The same holds true for the "optimistic" scenario.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 30 12:10 AM | Link | 2 Comments
  • Grading the investment skills of company “insiders” – Can they beat the market trading in their own company’s stock? And can YOU profit from mirroring their trades?

    Can company "insiders" beat the market by trading in their own company's stock?  And if so, can everyday investors beat the market by mirroring the trades made by insiders?  As I'll explain below, I believe that the answer to both of these questions is a resounding yes.  But in order to explain why insiders can beat the market, we need to dive (briefly) into a bit of modern portfolio theory.

    As you probably know, very few investors are able to consistently beat the market over a long period of time.  Modern portfolio theory posits that, because the market is so good at processing all publicly available information (i.e., "efficient"), it is virtually impossible to consistently earn a higher rate of return except under the following three circumstances:

    1. Blind luck:  The idea that if 1 million people each flip a quarter 10 times, the odds are that at least a couple of the poeple (out of a group of millions) will get "heads" each time. 

    2.  Taking more risk:  Another tenet of modern portfolio theory states that the return an investor achieves is tied to the amount of risk that investor takes.  In other words, it is the idea that without risk there is no reward.  Hence, it is consistent with modern portfolio theory to believe that you can outperform the market but, to do so, you must take on significantly higher risks than you would if you held "the market portfolio" made up of all of the stocks that are publicly traded. 

    3.  Trading on non-public information:  Even the strongest supporters of the efficient market hypothesis -- think Eugene Fama and Kenneth French, for you modern portfolio theory geeks out there -- will likely state that you can beat the market if you have material non-public information that no one else has and you use that information when making your investment decisions.  Trading on material non-public information in the manner I just described is illegal and is commonly known as "insider trading." 

    But what about company "insiders," such as the CEO or a member of the board of directors, who are always in possession of information about their own company that is not known to the investing community?  An outright ban on trading by insiders would seem unfair, especially since such a large portion of these individuals' compensation is tied to, or payable in, the company's stock.  Are insiders forbidden from buying or selling their own company's stock in the open market?  The answer is no.  The laws are complex, but essentially as long as the insiders are not in possession of specific, non-material information about the company, the "insiders" can buy and sell in the open market almost just like you and me.  I say "almost" because there are strings attached to their trades.

    The first restriction on insiders' trading activity is that they cannot trade while in possession of material non-public information.  For instance, if an executive knew what his company had earned in the previous quarter but the number had not yet been announced to the public, then he would be in possession of material non-public information.  So, too, would he be in possession of material non-public information if, for instance, he knew that his company was going to be involved in a merger or make a large acquisition but such information had not yet been publicly disclosed.  Under either of these circumstances, an insider is forbidden by the insider trading laws from buying or selling shares of his company's stock.  Usually company insiders trade only in the three or four weeks immediately following a quarterly earnings release, as it is less likely that they are in possession of material non-public information at that time.

    The second restriction is that insiders must report all transactions they make, including buying or selling shares of their company's stock in the open market, to the SEC within two business days of each transaction.  As you can imagine, these reports (called "Form 4s") provide a treasure trove of information about what the insider thinks about the value of his company's stock.  What's more, these reports allow regular investors just like you and me to mirror the trades made by company insiders.  If the CEO of a company you're thinking about buying makes a large purchase on the open market, then you will know about that purchase within two business days (and often on the same day the trade happened). 

    The third restriction is that insiders are subject to a six-month holding period.  If they violate the holding period, then they can be sued and all of the profit from their trade can be taken away from them by a court (called "short-swing liability").  For instance, if a CEO buys shares of his company's stock on the open market on January 1st, then he is legally forbidden from selling those shares at a profit until July 1st (six months later).  The matching also works the other way, meaning an insider cannot sell shares at a higher price and then buy them back less than six months later at a lower price.  Assume the CEO sells shares in the open market on July 1st and then, by August 1st, the company's stock price goes down and is lower than it was on July 1st.  As much as the CEO might want to buy shares at the lower August 1st price, he is legally restrained from doing so.  This is because six months have not passed and so he would be subject to the short-swing liability referenced above. 

    While these restrictions work against company insiders, they can work in favor of investors.  In particular, when company insiders buy stock on the open market (which the public quickly finds out about due to the reporting requirements), they are sending a very strong signal to the market that they believe their company's stock is undervalued.  When everyone is working from the same information, one person's opinion that a stock is undervalued likely doesn't carry much weight.  But remember, company insiders know things about the company -- in particular, a general sense for the future prospects of the company -- that no one else knows.  When an insider uses his own money to purchase shares in his company, he is doing so for only one reason -- to make money.  Recall that by purchasing shares of his own company's stock, the insider is taking quite a risk; due to the short-swing liability rules, he is effectively locking his money up for at least the next six months.  The insider could have chosen to invest in any other stock and been able to withdraw his money at any time, but instead he chose to lock his money up for six months in his own company's stock.  Why would a smart, high-achieving corporate executive make that choice unless he thought he would earn a superior return on his investment? 

    So what does the data say about whether company insiders can beat the market by investing in their own company's stock?  Many papers have been written about this very topic, and the answer is ... yes, they can.  What does this mean for you?  It means that, by following the lead of company insiders, you can beat the market as well

    A significant portion of my own investmenting strategy is driven by tracking and analyzing the open market purchases and sales made by insiders of publicly traded MLPs, as I believe that valuable information can be gleaned from such transactions. In fact, I’ve created an extensive database on these types of transactions and now have a system in place to identify the most promising insider transactions.  As I've discovered through studying my own data, some types of insider buys convey better information than others.  For instance, the aggregate amount invested, the number of insiders making open market purchase in close proximity to one another, the identities of the insiders making the purchases (e.g., 10% owners who are deemed by the law to be "insiders" typically don't have access to the type of non-public information that executive officers and directors do, and so their purchases are not necessarily good indicators of value), and even the past performance of the insider's previous trades are all factors that can be analyzed to spot the insider buys that are most likely to result in a whopping return to anyone who mirrors the trades. 

    In future posts, I intend to share some of the information that I've unearthed regarding how to spot the best buying opportunities in the MLP sector by analyzing insider trades.  For now, though, I will start with one of my simple strategies:  I look for situations in which at least three insiders (including at least one non-employee director and at least one non-director executive officer) have purchased shares in the open market in substantial quantities (which I define as an investment of at least $50,000) shortly after a large drop in the price of the common units.  Obviously, these situations don't arise often, but when they do I always pounce. 

    For instance, in May of 2010, Calumet Specialty Products Partners (NASDAQ: CLMT) reported disappointing earnings and the price of the common units fell off a cliff. 

    Sources:  CLMT press release, Yahoo! Finance historical stock price charts, SEC filings

    As is illustrated in the chart, the sequence of events was as follows:

    • On May 5, 2010, CLMT reported a loss for the quarter, which fell short of the market's expectations.  The stock immediately plummeted. 
    • Beginning on May 7, 2010, one of the executive officers of CLMT stepped in and purchased approximately $250,000 of common units in the open market. 
    • Over the next couple of weeks, two non-employee directors of CLMT made purchases on at least seven more days.  Combined, they purchased approximately $380,000 worth of common units, and each invested more than $50,000 individually. 
    • The purchase price for the common units purchased by these three insiders ranged from about $16.35 to $18.50. 
    • At any time during this period, regular investors could have mirrored these trades by buying in the open market at the same prices as the insiders.  (Lucky for me, I bought in at $17.50, which turned out to be a fantastic investment!)
    • Less than nine months later, the insiders -- as well as anyone who had the guts to step up and mirror the insiders' trades -- are now sitting on an average total return of approximately 42%.  They've also seen CLMT increase its distribution -- twice -- during this time.

    In future posts, I will share some of my other strategies relating to insider buying.  I truly believe that investors can achieve superior returns most, but not all, of the time by following the lead of insiders.

    Feb 09 1:48 AM | Link | Comment!
  • Should you hold MLPs in IRAs or 401(k)s?

    There are all sorts of tricky tax rules associated with master limited partnerships, or MLPs.  One of the most important rules that MLP investors need to understand deals with the consequences of holding individual MLPs inside of a retirement account, such as a 401(k) or an IRA.  Investors are usually told that they should hold dividend paying securities in their retirement accounts so that they are not taxed at ordinary income tax rates on dividends or distributions paid.  Does the same hold true for MLPs, which typically pay among the highest yields of any asset class? 

    MLPs and Retirement Accounts

    Can MLPs be held in a retirement account?  Yes.  Should MLPs be held in a retirement account?  Probably not.  Why?  Because there are potentially bad tax consequences to doing so.  As I'm sure you already know, the principal advantage that IRAs and 401(k)s have over traditional investment accounts is that IRAs and 401(k)s have favorable tax treatment.  In the case of traditional IRAs and 401(k)s, the contributions to such accounts are tax-free and you need not pay taxes until you actually withdraw the money; in the case of Roth IRAs and Roth 401(k)s, contributions are taxed but withdrawals are tax-free.  

    But this tax advantage may largely disappear if your retirement account is loaded with individual MLPs.  Why?  IRAs and 401(k)s are subject to taxes on a special type of income called unrelated business taxable income, or "UBTI."  Generally speaking, the distributions paid by MLPs are likely to be considered UBTI If an IRA or 401(k) earns more than $1,000 of UBTI annually, the UBTI income above $1,000 is subject to tax even if the securities are held in a retirement account

    Think about the implications of this tax rule.  If your retirement account earns more than $1,000 per year in UBTI, you've essentially just eliminated the tax advantage (single taxation rather than double taxation) of your retirement account!  For that reason, it is usually a good idea to hold MLP common units in a taxable account rather than a retirement account. 

    (Side note:  It is important to note that not all of the distributions paid by an MLP will be considered UBTI.  This is because UBTI is calculated by subtracting the partnership's deductions allocated to the investment from the income generated by the investment.  For instance, assume an investor holds $10,000 of "MLP X" in his retirement account, and MLP X pays total distributions of $1,000 annually on the investor's $10,000 investment.  Also assume that the amount of income allocated to you by MLP X is 20% of the distributions you receive, meaning that you were able to defer taxes on $800, or 80%, of the distributions.  MLP X has generated only $200 of UBTI, not $1,000.  The deferred portion is not counted toward UBTI.)

    A Better Way to Hold MLPs in Your Retirement Account

    All is not lost, however!  There are two primary ways that you can invest in MLPs without generating any UBTI:  i-shares and ETNs/ETFs. 

    I-Shares

    The first way to gain exposure to MLPs in your retirement account is through institutional shares known as "i-shares."  I-Shares were created to allow investors to hold the securities of individual MLPs in tax-advantaged accounts, like IRAs and 401(k)s.  There are currently only two i-shares available for purchase.  The first, Kinder Morgan Management, LLC (NYSE: KMR) mirrors Kinder Morgan Energy Partners (NYSE: KMP).  The second, Enbridge Energy Management, LLC (NYSE: EEQ), mirrors Enbridge Energy Partners (NYSE: EEP).  By purchasing either of these i-shares, you get to enjoy virtually the same investment returns that you would have achieved if you owned the underlying common units. 

    The primary differences between holding i-shares and common units are (i) you can hold i-shares in a retirement account without incurring any UBTI or other unwanted tax consequences and (ii) distributions in i-shares are paid in stock rather than cash.  Think of it like a stock split; each time a distribution is paid, you get more shares.  Even better, starting one year after purchase all of your gains when you sell are treated as long-term capital gains.  Another huge advantage is that you will not have to file K-1 statements as you would with traditional MLPs

    ETNs and ETFs

    The second way to gain exposure to MLPs in your retirement account is through exchange-traded notes, or ETNs, and exchange-traded funds, or ETFs.  Each has its benefits and its drawbacks. 

    The major benefit provided by ETNs is that they have "pass-through" tax treatment.  In other words, there is no corporate tax payable by the ETN; just like when you own MLPs directly, the only tax that is paid on distributions is at the unitholder level.  The major drawback is that ETNs are the unsecured obligation of the issuing bank, and investors in the ETNs bear the credit risk associated with that bank.  For instance, one of my favorite ETNs, the JPMorgan Alerian MLP Index (NYSE:  AMJ), is issued by JPMorgan.  Holders of this ETN bear the credit risk (however small) associated with JPMorgan; if JPMorgan were to go into receivership (the equivalent of bankruptcy for a bank), they would be unsecured creditors and would likely lose some or all of their investment in AMJ. 

    The major benefit provided by ETFs is that there is no credit risk associated with the securities.  There is a large price to pay for this protection, however, and it comes in the form of double taxation.  MLP ETFs do not get pass-through tax treatment; rather, the ETF pays corporate taxes on the distributions it receives from the MLPs it holds and investors must also pay taxes on the dividends they receive from the ETF.  Everyone must make their own investment decisions, but double taxation is, for me at least, too high a price for me to pay -- which is why I've opted for the ETN over the ETF. 

    Important tax disclosures

    I am not a tax specialist.  The information presented above was gathered from reports put out by Wells Fargo and Merrill Lynch on the tax treatment of MLPs.  Therefore, I make no guarantees as to its accuracy, and you should not rely upon it when making an investment decision.  This information is not intended to provide tax advice or to be used by any person to give tax advice. Taxpayers may not use this information to avoid taxes or penalties on taxes that may be imposed on such persons or taxpayers.  Tax laws are complicated and subject to change.  I urge you to seek tax advice based on your particular circumstances from an independent and professional tax advisor and a tax attorney

    Tags: KMR, KMP, EEQ, EEP, AMJ, MLPs
    Feb 08 2:21 AM | Link | 83 Comments
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