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Although equities have had a nice run in the past few months, oil prices have not kept up. Crude oil remains stubbornly around the $90/bbl level in WTI terms, and it shows no sign of breaking out in the near future thanks to a strong dollar.
While this situation has certainly had a negative impact on those invested in the commodity, it hasn’t been nearly as bad for oil producing ETFs and especially those in the MLP ETF space. These securities have had a banner start to 2013, and have actually outperformed the S&P 500 by a pretty wide margin.
In fact, MLP ETFs have actually led the way higher in the traditional energy space, pushing many investors to consider this often overlooked asset class (also read 3 Red Hot Dividend ETFs).
If anything, MLPs’ popularity can largely be thanks to ETFs/ETNs and how they have opened up this market to investors. Now, there are more than a dozen products targeting the broad space, giving investors a wide variety of choices in the MLP world.
The latest product to hit this market comes to us from Barclays in ETN form. Their Barclays ETN+ Select MLP ETN (ATMP - ETF report) offers up yet another way to target this increasingly in focus market, albeit in a slightly unique style.
ATMP in Focus
The ETN looks to track the Volume-Weighted Average price level of the Atlantic Trust Select MLP Index. This benchmark is designed to provide investors exposure to midstream American and Canadian master limited partnerships, LLCs, and corporations in the MLP space (read How to Play the MLP ETF Space).
These must trade on major U.S. exchanges and meet certain eligibility criteria such as long-term credit ratings, cash flow percentage derived from midstream operations, and average daily trading value. It is also worth pointing out that the note can consist of both limited partnership interests and general partner interests as well.
The product looks to charge investors 95 basis points a year in fees, in line with other products in the space. Lastly, interests in limited partnerships will be limited to 8% each, while general partnerships will have a ceiling of 4% for each individual holding, so assets should be well spread out.
How does it fit in a portfolio?
This ETN is probably appropriate for those investors who are seeking a relatively high income play that is capable of strong returns in the MLP space. The note’s underlying index, according to Barclays’ research, has had higher annualized returns and lower annualized volatility than two key Alerian benchmarks in the space (see 3 Excellent ETFs for Income Investors).
Still, investors should note that the average yield for the underlying index of ATMP has been lower than either of the Alerian MLP benchmarks highlighted. This could make ATMP a poor choice for those who put a premium on yield above all other aspects in the MLP space.
Investors should also note that this product is structured as an ETN, so there is some credit risk in this investment. However, this also eliminates tracking error and it helps to mitigate tax issues, a problem that can be big in the MLP world for some investors.
Can it succeed?
The MLP space is rife with competition including several billion dollar products. These include the JPMorgan Alerian MLP Index ETN (AMJ - ETF report) and the Alerian MLP ETF (AMLP - ETF report), two products that are based on the aforementioned competitor indexes to ATMP (also read Yorkville Debuts High Income Infrastructure MLP ETF).
Due to their impressive sizes, both of these products see robust trading volumes and may be difficult to unseat for new competitors. Still, most MLP products in the space have seen decent inflows and by most measures, can be considered successful products.
For this reason, I think that this new MLP ETN could see some decent inflows and start to eventually rival others in the space. The note already has $26 million in AUM after just a single day on the market, so clearly there is a bit of interest in their approach to the space.
The key will be if this new product can continue to outperform on a price basis, far above what investors can obtain in other corners of the MLP ETF world. If that is the case, it could make up for the ETN’s undersized yield and make this another viable choice for investors in the MLP ETF segment.
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