iPath jumps into a crowded and yield-rich field with its own MLP ETN.
iPath, the exchange-traded note sponsor backed by Barclays Plc, today launched an ETN focused on master limited partnerships, a vibrant pocket of the investment world inhabited by yield-hungry investors keen on finding ways to offset the fact that bond yields are currently so low.
The iPath S&P MLP ETN (NYSEArca: IMLP) joins a field of huge funds and mostly ETNs, including the $5 billion JPMorgan Alerian MLP ETN (NYSEArca: AMJ) and the $4.6 billion Alerian MLP (NYSEArca: AMLP). The new iPath ETN uses an MLP index from S&P, which differs from the Alerian MLP index that underlies the new ETN’s two well-established rivals.
One small but noteworthy difference between iPath’s IMLP and the behemoths of the space is that IMLP has an annual cost of 0.80 percent, or $80 for each $10,000 invested, which is less than AMJ and AMLP, which both have annual price tags of 0.85 percent.
Excluding leveraged and inverse products, IMLP’s arrival means the space now boasts 12 exchange-traded products, including eight ETNs. That busy traffic for a relatively small piece of the equities universe reflects the search for yield, which has become exceedingly difficult since the market crashed in 2008, and the Federal Reserve has devoted so much effort to keeping borrowing rates low.
The S&P MLP Index on which IMLP is based is designed to provide exposure to leading partnerships that trade on major U.S. exchanges and are classified in the GICS Energy Sector and GICS Gas Utilities Industry, Barclays said today in a press release.
IMLP’s benchmark includes both MLPs and publicly traded limited liability companies, which have a similar legal structure to MLPs and share the same tax benefits as MLPs, Barclays said.
“As investors continue to seek out investments with higher yield, this ETN offers the potential for income along with upside appreciation via index-linked exposure to US energy infrastructure-focused partnerships,” Kevin Murphy, head of U.S. Equity and Funds Solutions at Barclays, said in the press release.
A Unique Opportunity For MLP ETNs?
IMLP’s price tag matches the cost of the Etracs Alerian MLP Index ETN (NYSEArca: AMU), an AMJ clone that came to market last July in the wake of the halting of new AMJ note issuance by J.P. Morgan that was causing the huge ETN to trade at a premium.
AMU has gathered $35.5 million, suggesting that perhaps IMLP might have a decent chance at grabbing a piece of the MLP market.
MLP ETFs take a bigger hit from the tax man than do MLP ETNs, which probably explains why the space is more heavily populated by ETNs than ETFs.
But then again, ETNs carry credit risk of the financial institution that backs them. In the case of IMLP and other iPath ETNs, that bank is London-based Barclays Plc.
Avoidance of that credit risk might go a long way to explain how an exchange-traded fund such as the Alerian MLP ETF has raked in upward of $5 billion in assets.
On the other hand, the cheapest exchange-traded MLP product on the market, the Global X MLP ETF (NYSEArca: MLPA) has gathered just $25 million since its launch last year, notwithstanding its almost Vanguard-esque low annual expense ratio of 0.45 percent.