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Must-know: An investor's guide to the Alerian MLP ETF (AMLP)

Must-know: An investor's guide to the Alerian MLP ETF (AMLP) (Part 1 of 5)

Must-know: An investor’s guide to the Alerian MLP ETF (AMLP)

An overview of AMLP

The Alerian MLP ETF (AMLP) provides exposure to the Alerian MLP Infrastructure Index (AMZI), a capped, float-adjusted, capitalization-weighted index. The index gives investors a means of tracking the overall performance of the United States energy infrastructure master limited partnership (or MLP) asset class.

The Alerian MLP ETF (AMLP) launched in August 2010 and is designed to track an investment in the Alerian MLP Infrastructure Index (AMZI). The underlying index was developed by Alerian, a leading provider of objective MLP and energy infrastructure benchmarks, data, and analytics. Alerian launched the Alerian MLP Index (AMZ) in 2006. It’s a composite of the 50 most prominent energy master limited partnerships (or MLPs). AMZI was born out of AMZ in 2008 and is a midstream-focused subset of the AMZ, comprising 25 energy infrastructure MLPs. MLPs are specially structured entities that are exempt from corporate income taxes.

Of all the current MLPs, the majority are engaged in energy infrastructure such as pipelines, storage facilities, and processing plants. AMLP tracks the 25 largest companies in the midstream sector of the MLP universe. These midstream MLPs earn the majority of their cash flows from the transportation, storage, and processing of energy commodities.

Sector WeightingsEnlarge Graph

As of December 31, 2013, market capitalizations of the index components ranged from approximately $3 billion to approximately $62 billion. Major constituents of AMLP include Enterprise Products Partners (EPD), Kinder Morgan Energy Partners (KMP), Plains All American Pipeline (PAA), and Magellan Midstream Partners (MMP).

Characterstics of AMLPEnlarge Graph

Investors receive a variable quarterly dividend linked to the cash distributions paid on the MLPs in the index, less accrued tracking fees. A portion of each quarterly distribution is treated as a return of capital for tax purposes, while the remaining portion is treated as a qualified dividend.

The last quarterly distribution on the AMLP ETF was $0.278 per share, which on a current price of $17.87 per share (as of April 9, 2014) results in a current yield of ~6%.

To learn more about AMLP’s top holdings, continue to the following part of the series.

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