KYN, a closed-end mutual fund
The Kayne Anderson MLP Investment Company (KYN), a closed-end mutual fund, fell 5.4% in the week ended October 2, 2015. In comparison, the Alerian MLP ETF (AMLP), an ETF of infrastructure MLPs, rose 3.3% during the week. Midstream MLPs account for 82% of KYN’s portfolio.
The broad market SPDR S&P 500 ETF (SPY) rose 1.1%, and the Energy Select Sector SPDR ETF (XLE) rose 2.4% that same week. In comparison, the JPMorgan Alerian MLP Index ETN (AMJ) rose 3.8%. AMJ is an ETN (exchange-traded note) that tracks a broad index of 50 energy-related MLPs.
Mutual funds versus ETFs and ETNs
While ETFs and ETNs are designed to track the performance of some underlying indices, mutual funds are usually designed to follow a certain style of investment such as a fund investing in large-cap MLPs.
ETFs and ETNs typically have low management fees because they’re passive investments and just track the underlying index. The returns on ETFs are also generally limited to the underlying index. Factors like taxes and expense ratios may cause ETF returns to deviate from the index’s returns, as we discussed in the first part of this series.
Although mutual fund performance is also monitored against a 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 go higher or lower than the benchmark, which also decides a fund manager’s performance. As a result, mutual funds generally have higher fees than ETFs or ETNs.
KYN invests in energy MLPs
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. In contrast, open-end funds don’t have a limit on the number of units they can issue or redeem.
KYN invests mainly in energy MLPs and seeks high total returns for its shareholders. The fund doesn’t have a stated benchmark. It had a management fee of 2.40% in 2014. The above graph compares KYN’s returns for the week ended October 2 with those of AMJ, AMLP, and XLE.
Enterprise Products Partners (EPD) and Energy Transfer Partners (ETP) are KYN’s biggest holdings. Together, they form nearly a fourth of KYN’s portfolio. Enterprise Products Partners rose 9.0%, and Energy Transfer Partners fell 0.1% in the week ended October 2.
Kinder Morgan (KMI), Plains All American Pipeline (PAA), MarkWest Energy Partners (MWE), Buckeye Partners (BPL), and DCP Midstream Partners (DPM) are KYN’s other top holdings. Together, they account for ~28% of the fund.