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How MLP-Focused ETNs Have Performed This Year So Far

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Nov. 20 2020, Updated 1:21 p.m. ET

MLP funds underperformed SPY

In this article, we’ll analyze the performance of MLP-focused funds in February 2017. They have underperformed the SPDR S&P 500 ETF (SPY)(SPX-INDEX) since the beginning of 2017. The performance of some well-known MLP funds relative to SPY was as follows:

  • the Alerian MLP ETF (AMLP): -3.6%
  • the JPMorgan Alerian MLP ETN (AMJ): -3.2%
  • the UBS ETRACS Alerian MLP Infras ETN (MLPI): -2.4%
  • the Oppenheimer SteelPath MLP Select 40 A ETF (MLPFX): -4.1%

The Oppenheimer SteelPath MLP Select 40 A ETF is an MLP-focused open-ended fund.

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ETNs versus other MLP funds

Among MLP funds, ETNs have been the top performers in terms of total returns while open-ended funds have been the bottom performers in 2017. Open-ended funds’ underperformance relative to ETFs could be due to rebalancing costs.

MLP ETFs and ETNs tracking the same index still differ in performance due to different tax consequences. MLP ETFs are generally structured as C corporations, which means they have to pay corporate taxes on distributions before distributions are passed to investors. This results in a difference in performance of MLP ETFs and underlying MLPs.

In comparison, ETNs don’t pay any taxes on distribution, resulting in better performance tracking with MLP indexes. However, distributions are treated as taxable income in this case. Investors can avoid tax consequences or tracking errors by investing directly in MLPs, though they must undergo the complicated process of filing K-1 forms. For more detail on MLPs’ tax structure, read Tax Consideration: How Are MLP Investors Taxed?

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