This Day On The Street
Continue to site
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

Alerian MLP ETF's Little Secret

About $128 million can't be wrong, or can it?

Since its launch on Aug. 25, the Alerian MLP ETF (AMLP) has attracted an impressive amount of assets, nearly $128 million in less than a month. However, shareholders appear to be oblivious to the fact that AMLP employs a 62.5% daily leverage factor, thereby giving shareholders a 37.5% daily haircut.

Upon its arrival, AMLP was heralded by scores of analysts as the best way for investors to gain access to the performance of master limited partnerships, more commonly referred to as MLPs. My voice was a lonely one, telling investors to beware because I believed the marketing materials were misleading and AMLP's structure would make its performance fail to meet its objective.

In my original analysis, "Beware of MLPs in ETF Wrappers: AMLP" , I alleged the corporate tax structure chosen by AMLP would be a hindrance to its performance vs. the "pass-through" structures of other exchange-traded funds and exchange-traded notes. I also argued the marketing materials were misleading because they claimed AMLP would track the underlying Alerian MLP Infrastructure Index before fees and total expenses of 0.85%. There was no accounting for the 35% corporate tax impact.

Representatives from both Alerian and ALPS, the fund's advisor and distributor, contacted me regarding the story and ALPS eventually provided a written response in late August. I published "ALPS Responds To AMLP Article" earlier this month. I don't believe they adequately addressed any of the concerns I raised, but I will let you read it for yourself and draw your own conclusions.

Part of their reply included the assertion that MLPs packaged inside an ETF had long eluded many financial institutions that had "been trying for years to unlock the secret to an (MLP) ETF, long before the ETN ever came out ... fortunately, MSSRS (Gabe) Hammond and (Kenny) Feng finally figured out the key to the ETF structure."

I have figured out the secret too -- AMLP's daily net asset value is calculated with a 62.5% leverage factor.

First of all, investors must understand that when ETFs track an index they employ leverage. In the vast majority of cases the leverage is 1 times (or 100%) and the ETF seeks to track 100% of the daily change of the underlying index. Many investors tend to think of ProShares and Direxion when the subject of leveraged ETFs is brought up, as those two sponsors provide many of the two times and three times leveraged products on the market.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMLP $8.49 1.30%
AAPL $94.32 -0.71%
FB $101.50 2.00%
GOOG $684.48 0.94%
TSLA $144.76 -2.40%


Chart of I:DJI
DOW 15,951.75 -62.63 -0.39%
S&P 500 1,863.23 +11.02 0.59%
NASDAQ 4,315.7210 +46.9580 1.10%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs