2013 was pretty bumpy for interest-rate sensitive sectors like Master Limited Partnerships (MLPs) thanks to the Fed tapering talks which pushed up rates. Despite this sluggish trend, MLPs emerged as solid performers, and ended the year with decent average gains of about 16%.
With the Fed finally deciding on a soft QE cut-back (worth $10 billion per month) from January, investors appeared apprehensive about MLP performance heading into 2014. However, the trend doesn’t seem to be slowing down by any means.
In fact, the decent run in 2013, braving the rate issues, might have encouraged fund issuers like Direxion to roll out a new MLP ETF in the market. The issuer’s new MLP product called Zacks MLP High Income Shares ZMLP hit the market on January 23, 2014.
Zacks MLP High Income Shares: ZMLP
This ETF looks to track the Zacks MLP Index which is a benchmark of master limited partnerships engaged in the transportation, storage, processing, refining, marketing, exploration, production, and mining of natural resources and trades on North American stock exchanges.
The index rules out companies not having at least $300,000,000 of market capitalization. The index follows a quantitative rule-based strategy and takes value, liquidity, short interest, dividend yield and other factors into consideration for inclusion in its portfolio.
Currently, the MLP ETF holds 25 firms in its basket. The components of the portfolio are equal weighted each having about 4% exposure of the total. In terms of individual holdings, Hi-Crush Partners LP (4.82%), Alon USA Partners, LP (4.71%), and NuStar Energy L.P. (4.55%) take up the top three spots.
The portfolio is inclined toward smaller capitalization levels as these take up about half of the exposure followed by mid caps which account for one-fourth of the total assets.
Investors should also note that ZMLP is tilted toward oil & gas pipelines (44%). Energy exploration, and oil refining and marketing also account for decent allocations at 17% and 16%, respectively. Rounding out the portfolio is an 8% allocation to natural gas utilities, 7% to coal & alternative energy, 5% to metal and mining and 4% to agricultural chemicals.
ZMLP charges an expense ratio of 65 basis points and looks to deliver a dividend yield of 7%. Another important trait of this product is its structure as an ETF.
Also, the product is built as a C-Corporation which takes care of the K-1 headache of investors. However, before shareholders get paid out, the C-Corp has to pay taxes, reducing the size of distributions but eliminating the tax disclosure issue.