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Master Limited Partnerships (MLPs) Are Worth A New Look

Friday, April 6, 2012 - 5:47 AM
From US News
They're growing in popularity now because the partnership structure offers investors a rare income source in this low-yield world
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MLPs are a little less volatile than stocks but more volatile than bonds
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Tax time has gotten a little easier, however. Both the ETF and exchange-trade notes (ETN) structures circumvent K-1 filings by providing investors with dividend and interest payments, which require only a single 1099 tax filing.

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1
Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,699
1. Friday, April 6, 2012 - 11:44 AM
Bear in mind that ETNs, because they are essentially uncollateralized loans to an investment bank, are dependent on the creditworthiness of the issuer, something that investors in such notes issued by Lehman Brothers found out the hard way in 2008. They also, because of their very structure, place individual investors into adversarial relationships with the issuing investment banks (see Morningstar's March 21, 2012 article "Exchange-Traded Notes Are Worse Than You Think"). The MLP ETFs, such as AMLP and YMLP, on the other hand, have the disadvantage of being structured as C-corporations for federal tax liability purposes, so that they will inevitably underperform their index because their accrued tax liability is an immediate expense to every shareholder in the form of a daily adjustment to the fund's NAV. For example, in 2011 this expense exceeded 5% for AMLP, yet the fund disingenuously reported its total expense ratio as only 0.85%! I agree that MLP funds are worth a look, because of their high yields, but look with both eyes wide open!
3
WilWil242 posts since
Feb 26, 2010
Rep Points: 1,281
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