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JPMorgan Caps Issuance on MLP ETN (AMJ, AMLP, MLPA)

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JPMorgan Chase (NYSE: JPM) announced on Thursday that will cap issuance for the popular Alerian MLP Index ETN (NYSE: AMJ) at 129 million notes. The move is significant because with almost $4.2 billion in assets under management, the Alerian MLP Index ETN is the largest exchange-traded product offering exposure to MLPs.

The universe of MLP exchange-traded products has grown rapidly, but the Alerian MLP Index ETN and the ALPS Alerian MLP ETF (NYSE: AMLP) combine for the bulk of the roughly $7.5 billion in MLP exchange-traded products assets under management, according to data furnished by WallachBeth Capital.

New York-based WallachBeth, one of the largest ETF execution firms in the U.S., said JPMorgan's decision to cap issuance on AMJ could open the door for new MLP ETFs to gain assets. In a note published by the firm today, AMLP, the newly minted Yorkville High Income MLP ETF (NYSE: YMLP) and the Global X MLP ETF (NYSE: MLPA), another new fund, were cited as examples of fund that could potentially benefit from the AMJ issuance cap.

"When an ETP no longer allows for creations, the fund starts to trade like a closed end fund," WallachBeth said in the note. The reasoning behind this is that the arbitrage mechanism which allows market makers to sell the ETP is no longer available. Without the ability to create, market makers may be less inclined to sell the fund short versus a hedge of the underlying assets."

It is worth noting JPMorgan has only capped AMJ notes issued and investors could benefit as the ETN could easily trade at a premium to its net asset value once the creation facility shuts down.

"Should the fund reach the cap (we expect it will very soon) and redemptions follow, the fund would allow creates until it reached the cap again," according to WallachBeth.

AMJ had a yield of 5.5 percent as of its last coupon payment date earlier this month. AMLP has a trailing 12-month yield of almost 6.4 percent.

Posted-In: Analyst Color Long Ideas News Sector ETFs Short Ideas Dividends Dividends Specialty ETFs


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