ETF in Focus: Alerian MLP

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie, Contributing Editor and subscriber to ETF Digest

NEW YORK (ETF Digest) -- Q: What does an Oscar winner and an ETF winner have in common?

 

A: You've probably never heard of either of them.

Alerian MLP sounds like it might be some obscure Egyptian Sandal Manufacturer. It couldn't be farther from that. Alerian MLP is an index of Master Limited Partnerships in the Energy Sector that have the best/most reliable dividends -- currently yielding over 6%.

A significant portion of the holdings are pipelines. The pipes don't care what the price of crude is -- the rent/lease is the same. These function much like REITs where the profits are distributed to the shareholders in dividends. A reliable 6% dividend is hard to beat, but having the potential for capital gains is the cherry on top.

Some of the movers and shakers in this ETF are Kinder Morgan Energy Partnership (KMP) and Magellan Midstream Partners (MMP) both with better than a 27% gain in 2011. Plains All American Pipeline (PAA) delivered a whopping 28% gain in just the 4th Quarter. Energy Transfer Partners (ETP) is currently yielding 7.73% in the upper end of its price range.

Alerian MLP (AMLP) may not be the sexist, high flier out there, but it's an excellent choice for a ROTH or 401k.

Let's take a look at the Daily (AMLP) Chart:

 

Timing is everything. (AMLP) is prime for a pullback. The ADX is currently at 57.93. A reading of 40, usually indicates a trend reversal. Also, the RSI is at the highest level of overbought in six months. There is resistance at the 52 week high of $17.18 and upper trend line at $16.80. It is very unusual to push through a substantial resistance level on extreme overbought conditions as we currently have. 

Investors buy equities like these for their high yield so they're less prone to hard sell-offs than equities sought for capital gains. There are several support levels in the $15.50 to $16.00 range. Naturally, buying at a lower price increases the yield.

This ETF is relatively new having been opened in September 2010 so we really don't know it's upper potential yet. However, it has shown itself a strong performer and not prone to radical whipsaws.

With 2012 expected to be a choppy market much like 2011, a nice sleep-at-night holding like (AMLP) will be highly desirable. With a double bonus of a 6%+ dividend plus 8%+ capital gain, 14% is nothing to sneeze at when the S&P 500 had a 0.000016% loss for 2011.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.