This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A MLP ETF With a Catch

Stocks in this article: AMLP AMJ KMP

NEW YORK ( TheStreet) -- ALPS may have a hit on its hands with the launch of the ALPS Alerian MLP ETF (AMLP). This fund's introduction marks the first time investors can gain access to a basket of master limited partnerships in an ETF form.

ALPS' offering follows a growing trend within the exchange-traded product universe of firms that are launching products aimed at tracking companies responsible for transporting and storing natural gas and other fuels.

The energy sector has always a popular investing destination as players look for opportunities to bank on our insatiable appetite for power. Recently, master limited partnerships, which boast large distributions, have become particularly popular as sources of comfort during these turbulent times.

According to its factsheet, the dividend yield for the Alerian MLP Infrastructure Index which underlies AMLP was nearly 7% as of the end of June.

While attractive, the strong yields from MLPs come with a catch making them more complex than other asset classes when tax time comes around.

MLPs such as Kinder Morgan Energy Partners (KMP), Magellan Midstream Partners (MMP)and Plains All American Pipeline (PAA) pass through their income to investors which results in a K-1.

Traditionally, exchange traded products designed to track MLPs have been structured as exchange traded notes in order to avoid having to issue K-1s. Rather than tracking an actual basket of MLPs, JPMorgan Alerian MLP ETN (AMJ) and UBS E-TRACS Alerian MLP Infrastructure ETN (MLPI) are set up as unsecured debt obligations.

Any income payments from these funds are reported on the standard 1099 form. Although they skirt some confusion around tax time, ETNs carry added credit risk which may dissuade cautious investors from jumping aboard.

AMLP, on the other hand, is structured as an ETF. Because it tracks an index, one would expect that investors holding AMLP would be presented with a K-1. Interestingly, however, the fund promises to mimic its ETN competitors and avoid issuing a K-1.

AMLP's prospectus attempts to explain how it manages to avoid hassles at tax time. According to the paperwork, AMLP is taxed as a regular corporation. This means the fund is required to pay federal, state, and foreign corporate taxes on its taxable income. Currently the federal income tax rate applicable for corporations is 35%.

This is unlike most other investment companies, which are treated as regulated investment companies, allowing them to avoid paying state and federal taxes on their taxable income.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs