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ETF Specialist

Minimize Ownership Complications With This MLP Idea

This MLP exchange-traded note isn't revolutionary, but it has fewer structural issues than other popular exchange-traded products.

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Unfortunately, there's no perfect way to own master limited partnerships. It can be a paperwork headache to directly own a diversified group of MLP units, and because of various structural complications, even the best exchange-traded funds and exchange-traded notes have their drawbacks. It's rare for an exchange-traded note to be a viable alternative to an exchange-traded fund that tracks the same asset class, but  UBS E-TRACS Alerian MLP Infrastructure ETN (MLPI) is one of these unusual cases. There's nothing revolutionary about this note: MLPI tracks the same Alerian index as most MLP exchange-traded products and its 0.85% expense ratio is average. The case for MLPI is simply that it has fewer structural complications than the other two popular MLP products,  JPMorgan Alerian MLP Index ETN (AMJ) and  ALPS Alerian MLP ETF (AMLP). Investors have begun to pay attention to MLPI: It now sits at almost $2 billion in assets after more than tripling in size over the past 16 months.

What's in the Index
This note's index tracks 25 infrastructure MLPs, which are a subset of the MLP universe that specializes in "midstream" energy: the gathering, processing, and pipeline transportation of energy commodities like natural gas. Gathering and processing MLPs transport raw gas from the wellhead, process it, and move it to the cross-country pipelines. They often keep the impurities and sell them for additional revenue. Natural gas pipeline MLPs take processed natural gas and transport it through their extensive pipeline systems. They charge fees by volume with long-term contracts, so as long as the gas keeps flowing at increasing volume, pipeline MLPs will maintain good revenue growth. Petroleum pipelines transport crude oil to the processing plants and then ship the products to consumers.

Abby Woodham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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