UBS Adds Leveraged ETN To MLP Lineup

July 07, 2010

UBS doubles its presence in the MLP exchange-traded note world with a leveraged ETN that offers investors twice the returns of its index.

UBS, the Swiss bank famous for private-client wealth management, expanded its roster of exchange-traded notes today with the launch of a leveraged ETN that gives investors double exposure to an index of U.S. master limited partnerships.

The UBS E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index (NYSEArca: MLPL) is focused on energy infrastructure companies, many of which rely on income from transportation of commodities such as natural gas or refined petroleum products in pipelines. That gives them predictable cash flow based on energy demand rather than on underlying prices.

MLPs, which are publicly traded partnerships that have the tax advantages of partnerships and the liquidity of publicly traded stocks, generally pay reliable quarterly dividends to investors. They’re particularly attractive when official interest rates are close to zero, as is now the case after the Federal Reserve cut official interest rates to revive an economy that’s in its deepest downturn since the 1930s.

MLPL’s double-exposure structure gives it an estimated current annual leveraged yield of nearly 13 percent, a distribution level that is the “driving force” behind the launch of this ETN, Christopher Yeagley, a managing director and U.S. head of equity structured products at UBS said.

“The expected energy infrastructure build-out and the tax efficiency of MLPs is the driving force behind MLP growth,” Yeagley told IndexUniverse.

The launch of the new leveraged ETN follows the April rollout of the UBS E-TRACS Alerian MLP Infrastructure ETN (NYSEArca: MLPI). MLPI also isolates partnerships that are involved in energy infrastructure such as pipelines. The new ETN is the second ETN that UBS has launched in partnership with Alerian, and its based on the same index as the first ETN the two companies introduced in April.

ETNs are debt issues—senior unsecured debt, in the case of MLPL—backed by the good faith and credit of the issuer. That means investors incur credit risk associated with UBS. But ETNs also give investors the exact return of a given benchmark after fees, eliminating the tracking error often associated with ETFs.

 

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