Bring Some Excitement To The MLP Trade

Master limited partnerships (MLPs) are usually viewed as high-yielding, defensive assets, but there are some ways for investors to bring added excitement to this asset class.

What Happened

On Wednesday, Rex Shares added to its lineup of MicroSectors exchange traded notes with the debut of the Dorsey Wright MLP Index ETNs BMLP. BMLP follows the DWA MLP Select Index, which uses Dorsey Wright's proprietary relative strength methodology that serves as the foundation for a slew of other exchange traded funds.

“Relative strength measures how one security is performing in relation to another in an effort to identify which security is outperforming the other,” according to a statement from Rex Shares. “On a monthly basis, the Index rebalances the equally-weighted basket by selecting the 15 MLPs exhibiting the largest positive relative strength characteristics.”

Why It's Important

The idea behind relative strength at the index level is maximizing exposure to securities that are performing well while minimizing exposure to laggard stocks. BMLP's underlying index is equally weighted with each of its components commanding a weight of 6.67%.

Holdings in the new ETN include Alliance Resource Partners L.P. ARLP, Crestwood Equity Partners CEQP and Enable Midstream Partners ENBL.

“MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around,” according to ETF Trends. “Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.”

What's Next

Past performance is never a guarantee of future returns, but data indicate the DWA MLP Select Index has outperformed the two largest MLP exchange traded funds on the market and did so with a lower maximum drawdown.

BMLP charges 0.85% per year, or $85 on a $10,000 investment, and has a current yield of 7.23%, according to issuer data.

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