Source launches Europe’s first US energy MLP ETF

May 20th, 2013 | By | Category: Equities

Source, a London-based provider of exchange-traded funds (ETFs), has announced the launch of the Source Morningstar US Energy Infrastructure MLP UCITS ETF.

Source launches Europe’s first US energy MLP ETF providing exposure to energy infrastructure

Source’s new MLP ETF provides exposure to key US energy infrastructure assets such as pipelines.

The fund, which has been listed on the London Stock Exchange, provides exposure to US energy infrastructure via Master Limited Partnerships (MLPs).

It is linked to the Morningstar MLP Composite Index, a diversified rules-based index targeting 97% of the MLP universe.

The ETF is the first in Europe to offer dedicated exposure to this compelling segment of the US energy market, which is benefiting from the development of unconventional energy sources such as shale gas, tight oil and tar sands.

Domestic US energy production has seen extraordinary growth since 2005, as technological advances have allowed the extraction of oil and natural gas from previously inaccessible reserves. Infrastructure is central to this transformation with rising energy production – particularly in hitherto undeveloped areas – driving a significant expansion of energy infrastructure.

MLPs are key players in this infrastructure build-out. They own and operate many of the US’s core energy infrastructure assets, including pipelines, storage facilities, gathering systems and processing facilities. Although structured as partnerships, MLPs are listed and traded on US exchanges like conventional shares.

Historically, MLPs have generated stable cash flows, with relatively low sensitivity to commodity prices, and have typically paid out a high percentage of cash flows to investors. As such, they can offer an interesting opportunity to investors.

The underlying Morningstar index is fundamentally weighted, with index weights assigned according to the level of distributions paid, subject to a weight cap of 10%. It currently has 39 constituents, including names such as Enterprise Products Partners, Kinder Morgan Energy Partners, Energy Transfer Partners, Plains All American Pipeline and Energy Transfer Equity.

Ted Hood, Source CEO, said: “US energy infrastructure has become a major investment theme, but, for European investors, investment opportunities are limited. This product offers a convenient and well-thought-out package: diversified exposure from a highly-regarded index provider and a robust, transparent ETF structure.”

Sanjay Arya, senior vice president of Morningstar Indexes, added: “We are pleased that Source ETF has licensed our index for a MLP ETF. While MLPs as an asset class are just beginning to mature, investments in MLP ETFs and mutual funds have doubled in the last year as investor interest in income-producing investments and diversification has increased. We designed the Morningstar MLP Composite Index to provide broad exposure to the US MLP market with a weighting scheme that balances company size with dividend yield.”

The fund has a management fee of 0.50% per annum and a swap fee of 0.75% per annum. It is available in reinvesting and distributing share classes.

In the US, MLP-based exchange-traded products have been a huge success, with products such as the JPMorgan Alerian MLP Index ETN (AMJ) and Alerian MLP ETF (AMLP) gathering many billions of dollars in assets.

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