With the fiscal cliff resolved, investors once again starting buying high yielding products in droves. MLPs were no exception to this trend, and have gotten off to a roaring start in 2013.
In fact, many MLP ETF products have easily outpaced the market during the year-to-date period, and several have actually put up double digit gains in the time frame. In this type of environment, many ETF issuers have been quick to launch new funds as both IMLP and MLPJ have both hit the market since the 1st.
However, it doesn’t appear as if the trend is slowing down by any means, as upstart provider Yorkville has now joined the 2013 ETF launch party with its own High Income Infrastructure MLP ETF (:YMLI). This product is entering a crowded space and could face some difficulty in accumulating assets, but a relatively unique technique could assist the ETF in becoming more popular (see MLP ETFS: Unfortunate Victims of the Fiscal Cliff).
YMLI in focus
The new ETF looks to hold about 25 MLPs in its basket, while utilizing an equal weighting methodology. This ensures that no one MLP dominates the risk return profile of the fund and that assets are well spread out across the space.
Overall, this results in a portfolio that is tilted towards firms in the ‘gathering and processing’ (32%) aspect of the MLP world, while natural gas pipelines (32%) also make up a big chunk of the assets. Rounding out the portfolio is a 16% allocation to refined product pipelines, 12% to crude oil pipelines, and then 8% to ‘general partners’.
At time of writing, DCP Midstream Partners (DPM), Crosstex Energy (XTEX), and Sunoco Logistics (SXL) take the top three spots. Obviously with the equal weighting this means that they do not account for that big of a chunk, combining for about 9% of total assets (watch MLP ETFs Surging to Start 2013).
It should also be noted that due to the fund’s structure as a C-Corporation, a K-1 is not necessary for this ETF. This means that 1099 reporting is fine, while dividends will be qualified.
How does it fit in a portfolio?
This ETF could be an interesting choice for investors seeking broad exposure to the MLP space with a focus on income. Additionally, the use of an equal weight strategy could help to keep the portfolio balanced among the various subsectors, and prevent a heavy concentration.
Investors should realize that the product is based on the Solactive High Income Infrastructure MLP index, which was built and designed to be investable. This is evident by the focus of the benchmark on three key criteria; current yield, coverage ratio, and distribution growth (see Oil Bull Market Is No Place For MLP ETF Investors).