ALPS Alerian MLP ETF's Dirty Little Secret

Ron Rowland profile picture
Ron Rowland

$128 million can’t be wrong – or can it? Since its launch on August 25, 2010, the Alerian MLP ETF (NYSEARCA:AMLP) has attracted an impressive amount of assets, nearly $128 million in less than a month. However, shareholders appear to be oblivious to the fact that AMLP employs a 62.5% daily leverage factor, thereby giving shareholders a 37.5% daily haircut.

Upon its arrival, AMLP was heralded by scores of analysts as the best way for investors to gain access to the performance of Master Limited Partnerships, more commonly referred to as MLPs. My voice was a lonely one, telling investors to beware because I believed the marketing materials were misleading and AMLP’s structure would make its performance fail to meet its objective.

My original analysis was published in “Beware of MLPs in ETF Wrappers: AMLP” dated August 27. In it, I alleged the corporate tax structure chosen by AMLP would be a hindrance to its performance versus the “pass-through” structures of other ETFs and ETNs. I also argued the marketing materials were misleading because they claimed AMLP would track the underlying Alerian MLP Infrastructure Index before fees and total expenses of 0.85%. There was no accounting for the 35% corporate tax impact.

Representatives from both Alerian and ALPS contacted me regarding the story and ALPS (the fund’s advisor and distributor) eventually provided a written response on August 30. I published “ALPS Responds To AMLP Article” on September 3. I do not believe they adequately addressed any of the concerns I raised, but I will let you read it for yourself and draw your own conclusions.

Part of their reply included the assertion that MLPs packaged inside an ETF had long eluded many financial institutions that had “been trying for years to unlock the secret to an [MLP] ETF, long before the ETN ever came

This article was written by

Ron Rowland profile picture
Former ETF analyst, ETF strategist, newsletter author, newsletter publisher, separate account manager, RIA owner, mutual fund manager, and hedge fund manager. Founder/creator of the ETF Field Guide, ETF Deathwatch, InvestWIthAn Edge, AllStar Funds, All Star Fund Trader, and the Sector Ace.

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