Morgan Stanley began trading the “Morgan Stanley Cushing MLP High Income Index ETN” (NYSE:MLPY) today. The Exchange Traded Notes (ETNs) are based on the performance of the Cushing® MLP High Income Index (the Index), which is a criteria-weighted index tracking the performance of 30 Master Limited Partnerships (MLPs) which hold energy infrastructure and related shipping assets in North America. These Index constituents are chosen for having the highest current indicative yields among MLPs meeting certain criteria. The quarterly coupon payments are linked to the cash distributions paid on the MLPs in the Index, less accrued tracking fees. The ETNs are senior, unsecured debt obligations of Morgan Stanley.
What are MLPs?
MLPs are partnerships that trade on U.S. public exchanges or markets (e.g., NYSE). Most MLPs own and operate assets in the energy sector as natural resource-based companies that own, build and maintain the energy infrastructure (e.g., pipelines, storage facilities, gathering systems and processing plants) of North America. They are structured as partnerships rather than taxable corporations, so they do not pay federal or state income taxes at the entity level. The business model of a typical MLP seeks the advantages of high barriers to entry, low price sensitivities and continued demand for energy-related products and services due to overall energy demand.
Why invest in MLPs?
MLPs have historically performed well in a variety of market environments, typically with low correlation to the market. Investors have favored this asset class for its recent history of high, stable and growing distributions. However, there can be no assurance that performance, low correlation or high distributions will continue in the future.
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