Alerian MLP ETF marks tenth anniversary

Aug 26th, 2020 | By | Category: Commodities

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The Alerian MLP ETF (AMLP US), the largest infrastructure ETF globally with over $3.5bn AUM, has reached its ten-year anniversary on the NYSE.

Alerian MLP ETF

Alerian rang the closing bell of the NYSE on Tuesday, 25 August to celebrate the milestone.

The fund, offered through a partnership between energy infrastructure research firm Alerian and SS&C ALPS Advisors, provides exposure to the midstream segment of the US energy sector by investing in eligible master limited partnerships (MLPs).

Energy MLPs are defined as those owning energy infrastructure in the US that is used for the transportation, storage, or processing of oil and natural gas.

MLPs typically pay out the majority of their operating cash to investors on a quarterly basis and are known for delivering high yields.

The ETF tracks the Alerian MLP Infrastructure Index which currently consists of 20 MLPs weighted by float-adjusted market capitalization, subject to a 10% cap per constituent at each quarterly rebalancing.

The fund comes with an expense ratio of 0.85%.

AMLP, which launched on August 25, 2010, was the first ETF to provide investors with access to MLPs which historically have provided high levels of tax-advantaged income as well as diversification potential when held alongside a portfolio of traditional asset classes.

Against the backdrop of a renaissance in the US energy sector over the past ten years, the ETF benefits from widespread adoption by the investment community due, in part, to its first-mover advantage, transparent index-based strategy, and an innovative structure that eliminates K-1 filings for investors.

Paul Baiocchi, Senior Investment Strategy Advisor at SS&C ALPS Advisors, commented, “AMLP pioneered how investors incorporate midstream energy infrastructure into their portfolios. It was truly the first of its kind, giving investors pure exposure to MLPs without having to file K-1s.

“For energy infrastructure investors, AMLP has provided income, diversification, real asset exposure and growth potential. As we look ahead to the next ten years, we are confident AMLP will continue to hold relevance for investors seeking to access the MLP asset class.”

David LaValle, CEO of Alerian, added, “We are thrilled to continue supporting the Alerian MLP ETF through the Alerian MLP Infrastructure Index. The fund was a breakthrough in MLP investment and fostered a wave of capital investment into MLPs and energy infrastructure over the last decade which we look forward to seeing continue in the next ten years.”

Covid-19 disruption presents an opportunity

Although the fund is a powerhouse compared to rival energy infrastructure ETFs, its AUM is some way off its peak level of $11.3bn recorded in January 2018.

Most of the AUM drop has occurred in 2020 with the ETF down from roughly $8bn in January as investors fled the energy industry on the back of collapsing oil prices.

Performance-wise, the ETF is down 39.4% year-to-date (as of the end of trading on 24 August) while the fund has also seen five consecutive months of net outflows with investors withdrawing a cumulative $737m since March.

AUM Growth Alerian MLP ETF

However, according to Stacey Morris, Director of Research at Alerian, the midstream sell-off has been overdone and presents a compelling opportunity for investors.

Morris highlighted the segment’s resiliency due to steady cash flows that are not dependant on commodity prices nor the actual exporting of oil outside of the US. She also noted that falling valuations have pushed midstream companies’ yields near all-time highs, potentially representing a huge moment for income-seeking investors in the record low-interest-rate environment.

The yield on the Alerian MLP Infrastructure Index is currently at 11.8%, well ahead of other income-producing asset classes such as REITs (3.6%), utilities (3.4%), and bonds (1.1%).

UCITS debut

European investors can access an Alerian midstream index strategy through a UCITS ETF after the firm made its European debut in July in partnership with London-based white-label ETF provider, HANetf.

The Alerian Midstream Energy Dividend UCITS ETF is listed on London Stock Exchange in US dollars (MMLP LN) and pound sterling (PMLP LN), and on Xetra (JMLP GY) and Borsa Italiana (MMLP IM) in euros. It comes with an expense ratio of 0.40%.

The fund tracks the Alerian Midstream Energy Dividend Index which includes US and Canadian companies, including both MLPs and C-corps, which belong to the Oil & Gas Storage and Transportation sector, according to the Global Industry Classification Standard (GICS).

Constituents are weighted by aggregate annualized dividends in a bid to boost income potential, while any individual security is capped at 10% to ensure diversification.

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