ETF Watch: Amplify Debuts Oil Hedged MLP Fund

Today Amplify is rolling out its fourth fund and the third to carry the YieldShares brand name. The Amplify YieldShares Oil Hedged MLP Income ETF (AMLX) is actively managed and covers the master limited partnership space. As with the other funds bearing the YieldShares name, it looks to provide a high level of income.

AMLX comes with an expense ratio of 0.85% and is listed on the Bats exchange. Bats is owned by ETF.com’s parent company, CBOE.

Holds Short WTI Positions

The new fund selects its components from the Oil Hedged MLP Index with the intention of outperforming the index. It also holds short positions in WTI crude oil futures to limit the fund’s correlation with oil prices, according to the prospectus.

"Recent history has shown that oil price declines can have a significant impact on MLP share prices,” said Amplify CEO Christian Magoon. “AMLX is an ETF designed to hedge the impact of oil on MLPs while seeking to provide income and professional management of the portfolio.”

"In many ways, this is similar to currency risk when investing in country-specific ETFs like Japan or in regions like emerging markets. Returns can be negatively impacted by a secondary variable: currency in the case of international equity investments, and oil in the case of MLPs," he added.

Protection & Strategy

The MLPs that AMLX holds in its portfolio operate in all aspects of the oil and gas industry, from production to transportation. According to Magoon, the fund will generally own the 20 highest-yielding securities from the benchmark index. The short investment in WTI futures is intended to protect the portfolio from steep drops in oil prices, and also strategically used to limit the volatility of the overall portfolio.

The prospectus notes that the portfolio generally holds futures equal to 40% of the net notional value of the MLP portion of the portfolio. However, if the correlation between the price of oil and MLP prices rises enough, the hedge will toggle to 100%. The hedge is determined via an algorithm on a daily basis, so that on any given day, AMLX will have either a 40% hedge or a 100% hedge.

AMLX’s fee of 0.85% is lower than any other actively managed MLP ETF, and aligns with management costs typical of the largest index-based MLP products.

Contact Heather Bell at [email protected].