Global X MLP ETF Undercuts Rivals On Fees
Despite the soaring popularity of MLPs as income-generating plays, there were just eight exchange-traded products devoted to the asset class at the close of U.S. markets on Wednesday and just two were ETFs
Prepare for that number to increase by one on Thursday when Global X introduces the Global X MLP ETF (NYSE: MLPA). The Global X MLP ETF will compete directly with the ALPS Alerian MLP ETF (NYSE: AMLP) and the Yorkville High Income MLP ETF (NYSE: YMLP), which debuted earlier this year.
AMLP has proven popular with investors, hauling in almost $3 billion in assets under management. To its credit YMLP has attracted over $18.3 million in AUM since its mid-March debut. Not bad for a moth of work, but the Global X offering has a not-so-secret sauce that could intensify the battle for investor assets in MLP ETF space: An expense ratio of 0.45%, which is 40 basis points lower than its existing rivals.
New York-based Global X is primarily known for being the first to market with many of its, but the firm sees value in competing in the MLP ETF universe.
"The expense ratio is the story," Global X CEO Bruno del Ama told Benzinga in an interview. "It's unlike Global X to be a second mover unless we think we can add value. With MLPA, we saw an opportunity to offer a product at more competitive fee and, as a result, we think the fund will do well."
There's something to that line of thinking, MLPs are generally viewed as buy-and-hold instruments and while the currently existing ETFs are efficient for investors in terms of avoiding K-1 forms come tax time, the expenses do add up over time. An investor will lose $85 a year in fees for every $10,000 invested in AMLP or YMLP. With the Global X MLP ETF, that number drops to $45 a year.
Along those lines, the Global X MLP ETF could prove popular with financial advisors and investors that are planning for retirement. Individual MLPs are not suitable for tax-efficient retirement accounts due to the tax treatment of partnerships, but MLP ETFs are taxed differently than single stocks and have become popular for retirement purposes. del Ama sees an opportunity for Global X on that front as well.
"These funds have been successful because retirement plans have been heavy users of them," del Ama said. "That's one of the benefits of MLPA: It's eligible for retirement plans."
MLPA will be home to 30 stocks with 41.4% of the fund's weight going to natural gas pipeline operators and 39.5% going to petroleum transporters. Exploration and production companies, the growth segment of the MLP arena, receive an allocation of 7%, though del Ama said that percentage could increase over time.
Top-10 holdings include familiar MLP names such as Magellan Midstream (NYSE: MMP), Enterprise Products (NYSE: EPD), Kinder Morgan (NYSE: KMP) and ONEOK Partners (NYSE: OKS). Overall, MLPA's top-10 constituents account for just over half of the fund's weight.
At the end of the day, MLPA is all about the fees, or lack thereof. While Global X has hung its hat on introducing first-to-market products, some of the biggest ETF sponsors got that way by copying other firms' fund ideas, so there's something to be said for not always issuing the most unique products.
"We've encountered clients and investors that are invested in existing MLP ETFs and ETNs that aren't happy with existing price structures," del Ama noted. "We're going to democratize the market a bit more."
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