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New ETF Builds a Better MLP Mousetrap … Sort Of

MLPX ... it's not 'pure,' but it's cheap

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The Global X fund will track the Solactive MLP & Energy Infrastructure Index. The new benchmark was created specifically for the fund to comply with applicable RIC diversification rules.

The 35-company index includes traditional MLP’s as well as MLP general partner affiliates and other energy infrastructure corporations. In plain English, that means there are plenty of pipeline companies that are traditional stocks included in the mix.

In fact, there are no actual MLPs among the fund’s five largest holdings — which include Kinder Morgan (KMI), TransCanada (TRP), Enbridge (ENB), Williams (WMB) and Spectra Energy (SE).

All of those firms do own plenty of midstream assets and have been benefiting greatly from the “drop-down” relationship with their respective MLP subsidiaries. However, as general partners, they are very different animals than their pass-through sisters. They are subject to different risks, volatility and dividend distribution requirements. Solactive MLP & Energy Infrastructure Index only yields around 3%, not the 6% that MLP investors are used to.

A Potential Portfolio Fit

Given that MLPX isn’t a “real” MLP fund, the question is whether it’s actually useful in a portfolio.

That really depends on what you’re looking for.

If you’re looking for a way to play America’s growing need for new energy infrastructure solutions and want an all-inclusive approach to that play, than the new MLPX — along with rival RIC fund the First Trust North American Energy Infrastructure (EMLP) — is a wonderful portfolio addition. Just keep in mind that this may be more of total return package, and the yield isn’t going to very high.

However, if you want strictly the high income and potential lower-volatility that MLPs can provide, then investing in the new fund will surely disappoint. The underlying index just isn’t designed to chuck out income. Funds like AMLP or the JPMorgan Alerian MLP Index ETN (AMJ) are better suited for that need.

The bottom line is that MLPX’s dirt-cheap expense ratio is great … but only if you understand what you’re buying.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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