Global X Funds debuts junior MLP ETF

Jan 15th, 2013 | By | Category: Equities

Global X Funds, a New York-based provider of exchange-traded funds (ETFs), has announced the launch of the Global X Junior MLP ETF (MLPJ). The new ETF is the first to specifically target the small-cap segment of the booming MLP market.

Global X Funds debuts junior MLP ETF

The Global X Junior MLP ETF is the first ETF to specifically target the small-cap segment of the MLP market.

The fund is benchmarked to the Solactive Junior MLP Index, an index measuring the performance of US-listed energy and resource MLPs (or Master Limited Partnerships) with a market capitalisation of between $200 million and $2.5 billion.

MLPs are typically owners and operators of key energy infrastructure assets such as oil and gas pipelines, storage tanks and refineries. A growing number of MLPs are also involved in the exploration and production of energy assets.

These partnerships, which trade like equities, have been strong stockmarket performers lately as investors have looked to capitalise on the growth in the US energy industry and benefit from the hefty tax-efficient cash distributions they offer.

Growth in the US energy industry looks set to continue. According to a recent report from the International Energy Association, the US is on track to become the world’s largest oil producer by 2017 and a net exporter of natural gas by 2020. MLPs are particularly well placed to benefit from this energy renaissance, providing critical infrastructure for the exploration and production, transportation and storage of this increase in domestic energy.

Investors looking to access the MLP sector would appear, at first glance, to be well catered for with over a dozen ETFs and ETNs (exchange-traded notes) benchmarked to MLP indices. However, closer inspection reveals that the small-cap segment is largely unexplored by exchange-traded product providers, with most ETFs and ETNs tracking indices focused on the big names. Therefore, by specifically targeting junior MLPs, this new ETF offers a genuinely fresh opportunity for investors.

What’s more, this opportunity could prove fertile. Owing to their exclusion from the major, large-cap-biased MLP indices, these junior MLPs have in many cases not experienced the same price growth as their large-cap counterparts. Consequently, they could represent attractive value at current levels. Furthermore, many of these junior MLPs control increasingly important energy assets, which make them appealing takeover targets for larger MLPs looking to grow via acquisition, adding to upside potential.

Commenting on the launch, Bruno del Ama, chief executive officer of Global X Funds, said: “We are pleased to offer the first and only ETF that provides access to the rapidly growing junior MLP market. MLPJ uniquely meets investor demand for both income and growth in the energy space.”

The fund has been listed on the NYSE Arca and currently comprises 25 holdings, the largest of which are Suburban Propane Partners, Northern Tier Energy, Alliance Resource Partners, TC Pipelines and Natural Resource Partners.

The fund has total expenses of 0.75% per annum.

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