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KYN and TYG: MLP Investing through Mutual Funds


Dec. 9 2016, Updated 4:35 p.m. ET

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.

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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.

TYG outperformed KYN over the longer term

Two large MLP funds that we selected for comparison are Kayne Anderson MLP Investment Company (KYN) and Tortoise Energy Infrastructure Corporation (TYG). As the above graph shows, TYG outperformed KYN over the three-year and five-year periods. On the other hand, KYN outperformed TYG over the past year.

TYG invests primarily in MLPs and their affiliates in the energy infrastructure sector. Its top three holdings are ONEOK Partners (OKS), Plains All American Pipeline (PAA), and Magellan Midstream Partners (MMP). They form 8%, 7.8%, and 7.6%, respectively, of TYG’s portfolio.

KYN also invests primarily in MLPs which form 96% of its portfolio. Enterprise Products Partners (EPD), Williams Partners (WPZ), and Energy Transfer Partners (ETP) are KYN’s top holdings. They form 12.4%, 10.1%, and 9.8% of its portfolio.

Read What’s in Store for MLP Investors in 2017? to learn what makes MLPs an attractive investment option.


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