A New MLP Exchange-Traded Fund Hits the Market

NEW YORK (TheStreet) --Fund provider Direxion is known for its exchange-traded funds that use high amounts of leverage or that go in the opposite direction of the market.

The firm, however, also has a small line of funds for what it calls long-term investing, including the newly listed Direxion Zacks MLP High Income Shares (ZMLP).

MLP stands for master limited partnership, a kind of holding that tends to generate high yields usually tied to the transportation of oil, natural gas or some other resource. MLPs often trade differently than the broad equity market, but their taxation can be complicated.

The fund from Direxion tracks an index of high-yielding MLPs constructed by Zacks Investment Research. The underlying index is created using a quantitative process that screens MLPs with market caps greater than $300 million for value, liquidity, short interest, dividend yield and other unnamed factors.

The final constituency is made of the 25 MLPs that score the highest in this process. Those holdings are then equal weighted and rebalanced quarterly.

The fund's underlying index has a 7.01% yield, which after accounting for the fund's 0.65% expense ratio could give ZMLP a 6.36% yield, but as is the case with all exchange-traded products, the actual payout from the fund could be more or less than the preliminary indication.

The above-mentioned complicated taxation focuses on the issuance of a K1 partnership form by the MLP, which in itself then requires extra paperwork for investors at tax time and can even result in taxes owed even when an MLP is held in an individual retirement account or other tax-advantaged account.

If you liked this article you might like

Shares Of ZMLP Now Oversold