The latest addition to the MLP ETF space focuses on small-caps.
Global X Funds, the New York-based fund provider known for niche strategies, today is rolling out another ETF focused on master limited partnerships, this one targeting small-caps in the segment.
The launch of the Global X Junior MLP ETF (NYSEArca: MLPJ) comes roughly a week after the debut of the iPath S&P MLP ETN (NYSEArca: IMLP).
Together, the new additions add new wrinkles to the quickly crowding space of MLP-focused strategies that include the likes of the $5.13 billion JPMorgan Alerian MLP ETN (NYSEArca: AMJ) and ALPS’ $4.45 billion Alerian MLP ETF (NYSEArca: AMLP). Global X itself already offers a broad MLP fund, the Global X MLP ETF (NYSEArca: MLPA), which has gathered $25 million since it came to market in April.
MLPJ will track a Solactive index comprising small-capitalization MLPs involved with everything from mining and production of natural resources to storage, transportation and marketing. The fund will cost 0.75 percent in annual fees.
MLPs are U.S. energy assets created back in the mid-1980s, and have been used by many as safety investments, much like an allocation to U.S. Treasurys, and one that is known to deliver solid yields.
They are essentially partnerships that trade on a stock exchange like a corporation, but without federal income tax liability at the entity level, because they derive most of their revenues from steady fees such as interest, dividends, real estate rents, transportation and storage.
Because MLPs are well known for the steady dividends they deliver, they have grown in popularity with investors who are looking for income at a time of compressed yields in the more traditional fixed-income space.
The company noted in its most recent filing that the fund would be taxed as a regular corporation for federal income tax purposes, and part of the fund’s distributions would be treated as return of capital for tax purposes.
That means distributions are not taxable income to the investor, but they would reduce an investor’s tax basis in the fund shares.
As of Nov. 14, the index underlying the fund included 24 holdings with a market capitalization ranging anywhere from $200 million to $2.5 billion, although that range can change over time, the filing said.