Accessing the US Energy Infrastructure with MLP ETFs

ETF Securities, one of the world’s leading, independent providers of exchange traded products (ETPs) has recently launched ETFS US Energy Infrastructure MLP GO UCITS ETF on the London Stock Exchange and Deutsche Boerse (Xetra).

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Some exchange traded fund (ETF) enables investors to gain exposure to US energy infrastructure.

ETF Securities, one of the world’s leading, independent providers of exchange traded products (ETPs) has recently launched ETFS US Energy Infrastructure MLP GO UCITS ETF on the London Stock Exchange and Deutsche Boerse (Xetra).

Accessing the US energy revolution

This exchange traded fund (ETF) enables investors to gain exposure to US energy infrastructure such as natural gas, crude oil, refined product pipelines and assets associated with gathering and processing. “It tracks the Solactive US Energy Infrastructure MLP Index and therefore is the first MLP ETF in Europe to offer pure exposure to the midstream segment of the US energy infrastructure industry, a segment that has historically generated the highest absolute and risk-adjusted returns within the MLP market” explains Henry Boua, Associate Director for France and Monaco at ETF Securities

Product features

ETFS US Energy Infrastructure MLP GO UCITS ETF is an Irish domiciled UCITS ETF with the following characteristics :

  • Midstream focus: First European listed ETF focused on ’the midstream’ MLP segment
  • Favourable tax treatment with no taxation at a corporate level. The fund itself is not subject to US divided withholding tax and is therefore 100% exposed to the index performance.
  • Transparent and robust ETF structure with intraday liquidity
  • Competitive pricing, with lowest TER among European MLP ETFs (as of 30 June 2014)

Methodology

The objective of the Solactive US Energy Infrastructure MLP Index is to provide diversified exposure to the midstream segment of the US energy infrastructure market.

The index uses a two-tier selection process:

First, it ranks all eligible securities by two separate criteria:

  1. Forward looking Distribution Yield
  2. Distribution Stability

Second, it selects the top 25 ranked MLPs with an equal weight of 4%, i.e a total of 100 %.

“The index is a total return index calculated daily, rebalanced semi-annually with gross distribution reinvested. The inception date of the index is 5 March 2014. Historical back-tested data available since 30 September 2008.” says Henry Boua.

Composition of the Solactive US Energy Infrastructure MLP Index

As of the 31th August 2014, there were 25 components in the index, through different types of energy MLPs, such as gathering & processing, natural gas, crude oil and refined products pipelines for example

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Investments characteristics

The Solactive US Energy Infrastructure MLP Index offers the following advantages:

  • A strong performance against its peers

MLPs have outperformed major equity and bond benchmarks over the past 5 years, posting an annual return of 34% compared to 21% for the S&P 500, 18% for the MSCI World and 5% for the Barclays global bond index.

Performance over the past 5 years

  • A better historical risk return ratios relative to commodities & equities

The volatility of MLPs reached a five year low at around 7.5% at the end of March 2014. With one of the lowest volatility relative to commodities and equities, MLPs have been able to offer higher returns for the same level of risk, enhancing investors’ portfolio risk/return ratios.

MLPs risk/return ratios compared to other asset classes

  • Investment solution for diversification

Although MLPs’ correlation to equities and commodities reached an elevated level between 2009 and 2013, these numbers have started to decline over the past year, recently standing around -0.1 on average. “MLPs’ low correlation to bonds and other asset classes may provide useful diversification benefits” suggests Henry Boua.

MLPs correlation to other asset classes

Next Finance , October 2014

Article also available in : English EN | français FR

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