First Trust, the ninth largest U.S. ETF firm, today launched an actively managed energy infrastructure ETF focused on North American companies and master limited partnerships, making the Wheaton, Ill.-based firm the latest to jump on the onto the MLP bandwagon.
The First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP) will invest at least 80 percent of its assets in securities such including common stocks, depositary receipts, master limited partnerships (MLPs), MLP I-shares, MLP-related entities, pipeline and power utility companies, Canadian energy infrastructure firm and Canadian Energy Infrastructure Trusts ("CEITs"), according to recent regulatory paperwork.
Energy investments have been attractive in the past decade given booming demand from emerging markets, though consumption from developed countries has been flagging as the eurozone’s crisis slows things like vacation travel. However, MLPs are attractive because they derive income from steady fees related to energy transport, such as is the case with pipelines.
Also, an explosion of oil and gas extraction technology, notable hydraulic fracturing and expanding crude oil production from oil sands, is creating a demand for new infrastructure to support the new technologies.
The fund, which comes with an annual expense ratio of 0.95 percent, is more expensive than the numerous pure-MLP ETNs and ETFs now on the market, but it also casts a wider net. Most of the MLP securities, including the biggest, the $4.35 billion JPMorgan Alerian MLP ETN (NYSEArca: AMJ), have been priced on 0.85 percent, though the Global X MLP ETF (NYSEArca: MLPA) was launched about two months ago with an annual fee of 45 basis points.
Total Return And Distributions
The First Trust investment objective is to seek total return with an emphasis on current distributions and dividends paid to shareholders. Security selection will be based on rigorous investment research and tools along with conservative portfolio-construction methods.
Energy Income Partners, LLC is the sub-advisor to the fund and will manage the fund’s portfolio, according to First Trust.
The fund manager will investing primarily in securities of companies headquartered or incorporated in the U.S. and Canada that are engaged in the energy infrastructure sector. The sub-advisor believes such North American companies have an increase ability to benefit from the attractive economics of today’s energy sector.
That judgment is based on the belief that these improved economics, driven by major advances in drilling technology, are resulting in growing production of oil and natural gas that is requiring a new generation of energy infrastructure to support this new supply, First Trust said.
The ETF may also sell covered calls on equity positions in the portfolio in order to enhance its income, according to the filing.
The fund might also use derivatives, including options or forward contracts and swaps to hedge against interest rate and market risks.
First Trust, had $7.34 billion in ETF assets as of June 19, according to IndexUniverse’s “ETF League Table,” and first filed paperwork detailing the fund a bit more than a year ago.
Investors have fewer—but better—choices.
Sometimes what’s behind a very high dividend yield is truly surprising.
For VIX-related ETFs to work as that ‘magical’ hedge, you have to time the market. Good luck with that.
But this new product is different than other euro-hedged funds.