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
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Alerian MLP ETF's Little Secret

However, leverage can also be less than 100%. In the case of AMLP, the fund's market value is based on 100% daily leverage while the fund's NAV calculation (what the shareholder sees) uses 62.5% leverage and seeks to track 62.5% of the daily change of the underlying index. This fact doesn't appear to be disclosed anywhere to shareholders -- not in the AMLP prospectus, not in the Statement of Additional Information, and certainly not in the marketing materials.

The fund's custodian, Bank of New York Mellon (BK), is responsible for the daily calculation of the NAV and has apparently been informed about the daily leverage factor it should apply to its calculations.

In my original article, I said the "total expense ratio" of 0.85% appears to be misleading since it did not account for any of the 35% corporate tax impact. It now appears that "misleading" was much too soft of a word because the real expense ratio is closer to 0.85% plus 37.5% of the daily movement of the underlying index. Anyone can verify this by comparing the daily change of the Alerian MLP Infrastructure Index to the daily change of AMLP. Note: The typical daily factors for AMLP range between 59% and 66%. I am using 62.5%, with a 37.5% reciprocal, based on information supplied in the response I received from ALPS. Contrarily, the Web site states "a tax expense of 0.00% has been assumed since it cannot be predicted whether the Fund will incur a benefit or liability in the future." Seems to me they think it will be 37.5% of the daily change.

After less than a month of trading, the 37.5% daily clipping has added up to $1,026,353.10 as of Sept. 22. This figure is derived by subtracting AMLP's net asset value (what shareholders own) of $127,764,948.39 from the $128,791,301.46 market value (value of securities held). You can calculate the current difference using the data as listed on the performance page of the Web site. The 0.8% difference also happens to equal to AMLP's performance lag and amounts to a huge increase in the effective expense ratio.

If I were a shareholder, I would want to know where the other 37.5% of my promised gains went. Those profits are supposedly being held back to pay AMLP's corporate taxes. AMLP is touting its tax efficiency while at the same time clipping shareholders 37.5% of the daily movement for tax reasons. Now tell me again how the ETF structure is superior, especially for investors wanting to hold AMLP in an IRA like the marketing materials suggest?

Stock quotes in this article: AMLP 

Select the service that is right for you!

COMPARE ALL SERVICES
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.
DOW 16,424.85 +162.29 1.00%
S&P 500 1,862.31 +19.33 1.05%
NASDAQ 4,086.2250 +52.0640 1.29%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

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