How MLP-Focused ETNs Performed in 1Q17

In this part of the series, we’ll analyze the performances of MLP-focused funds in 1Q17. MLP-focused funds underperformed the SPDR S&P 500 ETF (SPY) in the recent quarter. Below are the performances of a few well known MLP funds compared to SPY.

• Alerian MLP ETF (AMLP): -3.3%
• JPMorgan Alerian MLP ETN (AMJ): -2.3%
• UBS ETRACS Alerian MLP Infrastructure ETN (MLPI): -1.7%
• Oppenheimer SteelPath MLP Select 40 Fund Class A (MLPFX): -3.2%

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

Among MLP funds, ETNs are the top performers in terms of total returns. ETFs are the bottom performers.

An MLP ETF and an ETN tracking the same index 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 on to investors. That results in a difference in performance of MLP ETFs and their 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 that case. You can avoid these tax consequences or tracking errors by investing directly in MLPs, but then you have to undergo a complicated process of filling K-1 forms. For more detail on the tax structure of MLPs, be sure to read Tax Consideration: How Are MLP Investors Taxed?