NEW YORK (TheStreet) -- The Federal Reserve's policies of zero percent interest rates and quantitative easing have been referred to in some circles as a war on savers. That's because interest rates on money markets, certificates of deposit and most parts of the bond market have been too low to generate a sufficient income.This has caused investors to seek out bond market alternatives including master limited partnerships, or MLPs. Typically MLPs capture a royalty off the transportation of energy products through a pipeline. They tend to have high dividend yields, low volatility and favorable, but complicated, taxation at the corporate level. MLPs are not common stocks, and the dividends are called "distributions." What's more, MLPs don't issue shares; they issue "units." Because they are partnerships, MLPs issue a K-1 form at tax time, which can be a complicating factor even for units held in IRA accounts. The K-1 issue then becomes a complicating factor for any fund targeting the space. There are several fund structures that exist that target MLPs, and all of them have positive and negative attributes. One type is a C-Corp. On the positive side, these funds handle the tax forms and pay the taxes for fund holders. The downside is that the tax bite is accounted for on a daily basis, which has the net effect of inflating the expense ratio to 4%-5%. Another type of MLP fund wrapper is the exchange-traded note. ETNs don't own anything; they promise to deliver the exposure so there are no complicated tax issues, but note holders own unsecured debt of the issuing bank, not an actual portfolio of companies. This past week Global X issued the MLP & Energy Infrastructure ( MLPX), which offers a unique strategy that seeks to lessen the complications of investing in the space. Unlike other MLP funds, MLPX is structured as a Regulated Investment Company, or RIC. On the plus side of the ledger, there will be no K-1 forms and, unlike ETNs, the fund will own a real portfolio of companies. The down side is that because it is an RIC, it can only allocate 25% of the holdings into MLPs; the rest of the portfolio will be divided between related energy companies, what Global X refers to as affiliate companies, and other energy infrastructure companies.
The largest holding in the fund is Kinder Morgan ( KMI), at 9% of the fund. KMI is an affiliate of the widely known Kinder Morgan Partners ( KMP). Although KMP, which is a master limited partnership, has a higher yield, KMI still has a healthy 4.26% payout. Because MLPX just started trading, there is no yield information available for the fund, but the underlying index has a 3.12% yield. If we account for the 0.45 expense ratio, we can calculate a yield of 2.67%, but as always, the fund's actual yield could be different. The expense ratio bears further mention because it is lower than some of the larger funds in the space with the different structures. The Alerian MLP ETF ( AMLP), which has accumulated an impressive $6 billion in assets, has an 0.85% expense ratio plus the tax obligation, which is disclosed at 4%. AMLP only owns MLPs, and MLPs are usually less volatile than the broad market. MLPX is only 25% in MLPs, so it remains to be seen whether the affiliated companies and other non-MLP holdings combine to offer a similar volatility profile as the Alerian fund. AMLP has performed as hoped for; it has low volatility and a 5.98% trailing yield. The huge assets in AMLP speak to how popular the MLP space is, and if MLPX can deliver similar yields and similar volatility in a cheaper fund with less complicated tax implications, then it should be a big success. As a final note, the nuances of the taxation are beyond the scope of this article but are something that any investor interested in MLPs or funds that own MLPs needs to explore with a tax professional in order to determine whether the securities are suitable for his or her portfolio. At the time of publication, Nusbaum had no positions in companies mentioned, but many of his firm's clients owned KMP Follow @randomroger This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.