An investor’s guide to AMLP and its holdings, like Kinder Morgan

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AMLP

The Alerian MLP exchange-traded fund (AMLP) is an ETF that tracks the Alerian MLP Infrastructure Index (AMZI). AMZI is a float-adjusted, capitalization-weighted composite of 25 energy infrastructure master limited partnerships (or MLPs). These MLPs earn the majority of their cash flow from transporting, storing, and processing energy commodities. An MLP is a company specially structured so that it doesn’t pay corporate taxes, and it’s fundamentally a publicly traded limited partnership.

AMLP Characteristics

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The Alerian MLP ETF (AMLP) launched in August 2010. 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).

For federal income tax purposes, AMLP has been structured as a “C-Corp.” So AMLP accrues deferred tax liability for its future tax liability on the capital appreciation of its investments, and the distributions it receives on the equity securities of its constituent MLPs are considered returns of capital. The deferred income tax expense (or benefit) represents an estimate of AMLP’s potential tax expense (or benefit) if it were to recognize the unrealized gains (or losses) in the portfolio. All realized and unrealized gains (or losses) on investments and expenses may vary greatly from year to year and from day to day, depending on the nature of the fund’s investments, the performance of those investments, and general market conditions.

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.AMLP Returns

The last quarterly distribution on the AMLP ETF was $0.278 per share, which on a current price of $17.93 per share (as of April 11, 2014) results in a current yield of ~6.1%.

Total returns from holding AMLP have been ~2.4% since January 1, 2014. In the past year, the ETF has returned ~8.0%, and for the past three years, it has returned ~9.5%.AMLP Holdings

As of April 11, 2014, assets under management in AMLP totaled $7.9 billion. On average, ~3.4 million AMLP ETF units were traded daily in the exchange in the past month. The total annual operating expense is 4.85%, consisting of management fees of 0.85% and deferred a tax expense of 4.00%.

The largest MLP ETF fund is the Alerian MLP ETF (AMLP), which tracks the Alerian MLP Index, a capitalization-weighted composite of 50 energy MLPs. Other MLP ETFs include the Yorkville High Income MLP (YMLP), the Global X MLP ETF (MLPA), the Yorkville High Income Infrastructure MLP ETF (YMLI), and the Global X MLP & Infrastructure ETF (MLPX). Note that these other MLP ETFs all have significantly smaller market caps than AMLP.

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