With the fiscal cliff solved and dividend tax rates still at
relatively favorable levels, some might have thought that demand
for MLPs and MLP ETNs would diminish. However, that has not been
the case, at least in the first part of the year, as high
yielding securities have remained in focus no matter what their
tax structure (see
4 Best ETF Strategies for 2013
).
Playing on this continued trend here in 2013 is iPath, a firm
that already has a host of other Exchange-Traded Notes, but is
just now stepping into the crowded MLP world. The Master Limited
Partnership space has more than a dozen ETPs so it could be a
fierce battle for iPath in order to garner a significant level of
assets as more than $10 billion is in the relatively-small sector
already.
Still, iPath seems undeterred by the competition as it has
just launched an MLP ETN of its own, the
S&P MLP ETN (
IMLP
)
. This new note will charge investors 80 basis points a year in
fees, will pay a quarterly coupon, and will be linked to the
performance of the consolidated volume-weighted average price
level of the S&P MLP Index (read
Venezuela: The Next Black Swan for Oil ETFs?
).
This benchmark consists of both pure MLPs as well as
publically traded LLCs that have a similar legal structure-and
tax benefits-as MLPs. The index also stipulates that at the
rebalancing date no single security can account for more than 15%
of the benchmark, and that all the stocks that have at least 4.5%
of the portfolio each cannot make up more than 45% of the index,
in order to insure a high level of diversification.
In terms of
index members
, there are 56 in total with an adjusted market cap of about
$10.5 billion. Some of the top constituents include
Enterprise Product Partners (
EPD
)
,
Kinder Morgan Energy Partners (
KMP
)
, and
Plains All American Pipeline (
PAA
)
.
This approach does give the note an exposure profile that is
very similar to what investors already see in a number of more
popular MLP products like
AMLP
, or
MLPI
just to name a few. However, the more stringent caps on the
biggest holdings and a relatively more spread out profile could
add to the fund's appeal for those seeking a different take on
the MLP world (read
How to Play the MLP ETF Space
).
Additionally, investors should note that the product is a bit
cheaper from an expense ratio perspective beating out many of the
most popular products in the space. Only the
ETRACS Alerian MLP Index ETN (
AMU
)
is able to match IMLP from a cost perspective, while just
Global X's
MLPA
is able to truly beat out the product coming in at just 0.45% per
year in fees.
Despite the lower costs for each of these other two
competitors, neither has managed to amass much in assets or
volume. The two have a combined $65 million in assets, a figure
that is more or less a rounding error for the biggest MLP
products, suggesting that many haven't embraced a low cost
approach when it comes to MLP investing (see
ETFs Vs. ETNs: What is the Difference?
).
Given this trend and the heavy competition already present in
the space, it could be difficult for IMLP to carve out a niche,
especially with its similar holdings profile. Instead, the
upstart ETN will have to rely on the solid iPath brand name, the
potential for a more spread out asset distribution, and a lower
cost to compete in this fierce segment of the exchange-traded
product world.
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(AMU): ETF Research Reports
ENTERPRISE PROD (EPD): Free Stock Analysis
Report
(IMLP): ETF Research Reports
KINDER MORG ENG (KMP): Free Stock Analysis
Report
(MLPA): ETF Research Reports
PLAINS ALL AMER (PAA): Free Stock Analysis
Report
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