Cushing Asset Management has launched a suite of ETFs on NYSE Arca that invest in a combination of sector-focused equities and master limited partnerships (MLPs).
The funds include exposure to MLPs that are involved in the transportation and storage of natural gas, crude oil, and refined products.
MLPs are publicly traded limited partnerships which have traditionally offered attractive income opportunities.
The Cushing Sector Plus ETFs mark Cushing’s debut as an ETF issuer; however, the firm has an extensive history within the energy investment space, and several of its self-designed indices currently serve as the underlying for existing MLP ETFs.
The new funds are also linked to Cushing’s own custom indices and provide exposure to US large-cap equities from firms operating in the energy, utility, transportation, and energy supply chain industries.
The Cushing Energy & MLP ETF (XLEY US) tracks the Cushing Energy Index which draws its constituents from the S&P 500 Energy Index.
The Cushing Utility & MLP ETF (XLUY US) tracks the Cushing Utility Index which draws its constituents from the S&P 500 Utility Index.
The Cushing Transportation & MLP ETF (XLTY US) tracks the Cushing Transportation Index which draws its constituents from the Dow Jones Transportation Average.
And the Cushing Energy Supply Chain & MLP ETF (XLSY US) tracks the Cushing Energy Supply Chain Index which draws its constituents from both the S&P 500 Energy Index and the S&P 500 Materials Index.
Constituents are selected and weighted by dividend yield with a cap of 6% per issuer and such that the sum of all weights amounts to 76%. Those securities with weights below 1% are removed, and their weight is redistributed amongst the remaining stocks.
The remaining 24% exposure is allocated to MLPs, specifically to constituents from the Cushing 30 MLP Index. This index tracks the performance of midstream energy companies which are typically involved in the transportation and storage of natural gas, crude oil, and refined products.
MLPs within the Cushing 30 MLP Index are ordered by current yield. Those ranked sixth to seventeenth are selected for inclusion and assigned an equal weight of 2% each.
By avoiding the highest-yielding MLPs, Cushing believes the funds gain an optimal amount of additional yield without taking on too much risk.
“Selecting existing sector indexes that operate fundamentally related businesses to energy MLPs, weighting the constituents on indicated yield, and adding a limited amount of MLPs is designed to produce a higher yield focus while maintaining the desired sector exposure,” said Todd Sunderland, Head of Risk Management and Quant Strategies at Cushing Asset Management. “With the approach we’ve taken with the Sector Plus suite, investors are able to add the industry and sector exposure they seek, while avoiding overconcentration and adding income potential in a tax efficient manner.”
Each ETF comes with an expense ratio of 0.65%.