ETF to Dump No. 2: Alerian MLP ETF (AMLP)
As I've said before, master limited partnerships, or MLPs, are often a great investment. They typically have high dividend yields and have generated significant capital gains the past few years.
So what's the problem with Alerian MLP (AMLP)?Well, it is the only ETF on the market that is not a pass-through entity for tax purposes. AMLP is structured as a C corporation, which means it pays 35% federal taxes plus various state taxes on all its gains. The roughly 1,000 other ETFs and ETNs pay none. The result: AMLP significantly underperforms its competition and its benchmark. The impact of "tax drag" on this fund is staggering . The sponsor handles it by clipping off about 37% of each day's price move, leaving investors with only 63%. Investors may also be slammed with additional taxes when they sell their AMLP shares. While there is no perfect way to access MLPs with exchange-traded products, the way AMLP does it is unquestionably the worst.
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