The Kayne Anderson MLP Investment Company
The Kayne Anderson MLP Investment Company (KYN), a closed-end mutual fund, fell 1.6% in the week ended August 21. At the same time, the broad-market SPDR S&P 500 ETF Trust (SPY) fell 5.6% and the Energy Select Sector SPDR ETF (XLE) fell 8.4%. The JPMorgan Alerian MLP Index ETN (AMJ) fell 5.1% during the week. KYN primarily invests in energy MLPs. It had a management fee of 2.4% in 2014.
Mutual funds versus ETFs and ETNs
While ETFs and ETNs are designed to track the performance of some underlying index, mutual funds are usually designed to follow a certain style of investment—for example, a fund investing in large-cap MLPs. ETFs and ETNs have low management fees, as they’re passive investments and just track the underlying index. The returns on ETFs are also generally limited to the underlying index. Factors such as taxes and expense ratios may cause returns to deviate from the index’s returns, as we discussed in the first part of this series.
Though mutual fund performance is also monitored against some benchmark, the fund manager decides which companies to invest in as well as how much to invest in them within the fund’s mandate. Mutual fund returns can well go higher or lower than the benchmark, which also decides a fund manager’s performance. As such, mutual funds generally have higher fees than ETFs or ETNs.
KYN is a closed-end mutual fund. Closed-end funds have a fixed number of units issued at the time of the initial offer. These units trade on stock exchanges, and they may trade at a premium or a discount to their NAV (net asset value), depending on supply and demand. Open-end funds, on the other hand, don’t have a limit on the number of units they can issue or redeem.
The above graph compares KYN’s returns for the week with those of the JPMorgan Alerian MLP Index ETN (AMJ), SPY, and XLE. All of these returns include dividends.
Enterprise Products Partners (EPD) and Energy Transfer Partners (ETP) are KYN’s biggest holdings. EPD forms 11.6% and ETP forms 11.5% of KYN. EPD fell 3.9% and ETP fell 5.6% in the week ended August 21.
Kinder Morgan (KMI), Plains All American Pipeline (PAA), MarkWest Energy Partners (MWE), Buckeye Partners (BPL), and DCP Midstream Partners (DPM) are the other top holdings in KYN. Together, these companies form ~28% of the fund.