As of 2014, prominent exchange-traded funds holding master limited partnerships are Alerian MLP ETF, Yorkville High Income ETF and First Trust North American Energy Infrastructure ETF. Michael Fabian, managing partner at FMD Capital Management recommends these MLP ETFs based on overall performance and yield, as stated on MarketWatch,Continue Reading
According to Fabian, Alerian MLP ETF outperforms the Standard and Poor's 500 Index because it comprises 25 of the largest and most liquid traditional MLPs, including Kinder Morgan, Enterprise Products and Plains All American Pipeline. The fund gained 13 percent with yields of 5.96 percent during the first 10 months of 2014. In comparison, the S&P 500 gained 8 percent during the same period.
For ETFs with more diversified investments, Fabian recommends Yorkville High Income. With a mix of holdings including coal producers and shipping carriers, the fund outperformed Alerian by 5 percent, yielded 8.1 percent and provided high payout ratios in 2014. Another diversified fund, First Trust North American Energy Infrastructure ETF with holdings in oil, natural gas storage, transportation and power transmission provided a lower yield at 2.38 percent but gained 21 percent during the same period.
MLP ETF shareholders avoid tax liability because the funds typically operate as C corporation vehicles, paying taxes at the corporate level. Also, investors receive distributions under the category of return of capital, which reduces shareholder cost over time. As a result, this structure has a wide-tracking margin in relation to the underlying index, notes Fabian.Learn more about Investing