The new product propels Firsts Trust into the highly competitive, but popular MLP world where there are already 10 other products managing about $8 billion in assets.
Investors looking for high-yield funds in the current low-yield environment may consider EMLP since it invest in firms that are in the energy infrastructure sector including Master Limited Partnerships (MLP), Limited Liability Partnerships taxed as partnerships, pipeline and utilities and Canadian income trusts that generate at least half of their revenues from infrastructure assets such as petroleum and natural gas storages, pipelines and power transmissions.
North American energy infrastructure has witnessed heightened investor interest in recent times partly because MLPs are required to distribute significant amount of their earnings to claim certain tax advantages. Hence these particular classes of funds are popular for hefty yields in these times of record low interest rates.
Additionally, energy infrastructure assets display lower degree of volatility compared to traditional petroleum-related stocks since the firms covered are primarily engaged in transport and storage of energy commodities and are far less susceptible to spot price fluctuations.
The three asset classes that EMLP invests in, namely energy MLPs, utilities and Canadian Income Trusts, have a proven history of substantial dividend growths and earnings distribution, beating REITs and large capitalization US stocks that are traditionally known as high yield asset classes.
To achieve high yields, the fund undertakes a multi-pronged approach. Firstly, it considers only 50 top companies in each segment for inclusion in the fund. Next it picks firms that have monopolistic advantages in the segment and that operate in a non-cyclical environment, capable of passing on costs on end users.
Finally, managers look at firms that have quality financial metrics and a good management track record. Once identified, assets are allocated considering associated risks and internal rate of returns (IRRs).
EMLP’s main tax advantage accrues from the fact that it allows investors to report gains on a single 1099 Form as opposed to multiple K-1s. This translates into lower administrative costs compared to purchasing individual securities. Energy Income Partners, LLC which currently oversees $1.6 billion in assets, will be the sub-advisor for EMLP. The fund has an expense ratio of 0.95 percent, higher than the average for MLPs which is around 0.80 percent.
This is a new ETF with not much pricing history, which makes it difficult to observe and compare trends to other similar products. I suggest you wait until at least 9 months of pricing data is available before taking any exposure should this ETF be of interest to you.
Disclosure: No holdings