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ETF Specialist

An Exchange-Traded Note for Low-Cost Exposure to MLPs

MLPs have fallen out of favor this year amid lower commodity prices, currency concerns, and interest-rate fears. This ETN offers broad exposure to the asset class.

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Holders of exchange-traded products devoted to energy-oriented master limited partnerships felt plenty of pain in the first half of 2015. First, it was lower commodity prices and some tough quarter-over-quarter comparisons. Then the space was walloped by concerns about foreign currency and a likely increase in interest rates.

While MLP returns have not been pretty thus far this year, they have served as an important (if painful) reminder that MLP ETPs are not immune to energy-price volatility. There’s no question that they are more insulated than broad energy funds when it comes to energy-price movements, but they do end up feeling some pain. About one fourth of industry cash flows are commodity-sensitive, so as oil prices declined relative to natural gas prices, gas processing margins contracted, weighing heavily on the cash flows of MLPs that have non-fee-based gas processing businesses.

Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.