Master Limited Partnerships (MLPs)

Transcription

1 1Q 2017 Master Limited Partnerships (MLPs) Distinct Focus on Yield VanEck Vectors High Income Infrastructure MLP ETF (YMLI) VanEck Vectors High Income MLP ETF (YMLP)

2 ETF disclosure This material does not constitute an offer to sell or solicitation to buy any security, including shares of any fund. An offer or solicitation will be made only through a fund s prospectus or summary prospectus and will be subject to the terms and conditions contained therein. This material and the information provided herein are not directed at or intended for distribution to any person (or entity) who is a citizen or resident of (or located or established in) any jurisdiction where the distribution of these materials and/or the purchase or sale of interests of a fund would be contrary to applicable law or regulation or would subject a fund to any registration or licensing requirement in such jurisdiction. Persons who wish to review this material are required to inform themselves about and to observe any legal or regulatory restrictions which may affect their eligibility to make an investment in a fund. Professional advice should be sought in cases of doubt. THIS MATERIAL MAY ONLY BE PROVIDED TO YOU BY VANECK AND IS FOR YOUR PERSONAL USE ONLY AND MUST NOT BE PASSED ON TO THIRD PART IES WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF VANECK. IF YOU HAVE NOT RECEIVED THIS MATERIAL FROM VANECK, YOU ARE HEREBY NOTIFIED THAT YOU HAVE RECEIVED IT FROM A NON-AUTHORIZED SOURCE THAT DID NOT ACT ON BEHALF OF VANECK AND THAT ANY REVIEW, USE, DISSEMINATION, DISCLOSURE OR COPYING OF THIS MATERIAL IS S TRICTLY PROHIBITED. BEFORE MAKING AN INVESTMENT DECISION, PLEASE CONSULT A QUALIFIED INVESTMENT AND TAX ADVISOR. Any projections, market outlooks or estimates in this material are forward-looking statements and are based upon certain assumptions that are solely the opinion of VanEck. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. Further, any information regarding portfolio composition, portfolio composition methodology, investment process or limits, or valuation methods of evaluating companies and markets are intended as guidelines which may be modified or changed by VanEck at any time in its sole discretion without notice. Past performance is not a guarantee of future results. Investment return and value of the shares of a fund will fluctuate so that an investor s shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Fund returns reflect dividends and capital gains distributions. Net asset value (NAV) per share is calculated by subtracting total liabilities from the total assets, then dividing by the number of shares outstanding. Share price is the last price at which shares were traded on a fund s primary listing exchange. Fund shares may trade at, above or below NAV. Performance current to the most recent month end available by calling or by visiting vaneck.com/etfs. Forecasts, estimates, and certain information contained herein are based upon proprietary research and the information contained in this material is not intended to be, nor should it be construed or used as investment, tax or legal advice, any recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security. References to specific securities and their issuers or sectors are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities or gain exposure to such sectors. The fund(s) may or may not own the securities or be exposed to the sectors referenced and, if such securities are owned or exposure maintained, no representation is being made that such securities will continue to be held or exposure maintained. Van Eck Securities Corporation, Distributor, 666 Third Avenue, New York, NY 10017,

3 ETF disclosure Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called creation units and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading fund shares in the secondary market. Past performance is no guarantee of future results. Returns for actual fund investments may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Indices are unmanaged and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. An index s performance is not illustrative of a fund s performance. Indices are not securities in which investments can be made. The funds are the successors to the Yorkville High Income MLP ETF and Yorkville High Income Infrastructure MLP ETF pursuant to reorganizations that took place on February 22, Prior to that date, the funds had no investment operations. Accordingly, for periods prior to that date, any fund performance information is that of the Yorkville High Income MLP ETF and Yorkville High Income Infrastructure MLP ETF. The VanEck Vectors High Income MLP ETF and VanEck Vectors High Income Infrastructure MLP ETF (the "Funds") are treated as regular corporations for federal income tax, which differs from most investment companies. Unlike traditional exchange-traded funds (ETFs), the Funds are subject to U.S. federal income tax as well as state and local income taxes. Further, the amount of taxes currently paid by the Funds will vary depending on the amount of income, and gains derived from investments and/or sales of MLP interests and such taxes will reduce your return. A portion of the Funds distributions is expected to be treated as a return of capital for tax purposes. To the extent distributions represent a return of capital; an investor s cost basis will be reduced at the time of sale potentially increasing taxes owed. Solactive indices have been licensed by Solactive AG for use by Van Eck Associates Corporation. VanEck Vectors ETFs are not sponsored, endorsed, issued, sold, or promoted by Solactive AG nor does this company make any representations regarding the advisability of investing in VanEck Vectors ETFs. An investment in the Funds may be subject to risks which include, among others, risks specific to MLPs such as tax risks, limited control of management, limited rights to vote on matters affecting the MLPs, and conflict of interests between the general partner or managing member and limited partners, all of which may adversely affect the Funds. MLP investments can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, and factors affecting the energy sector and infrastructure MLP industry. The complex tax nature of MLPs may adversely affect the Funds. The Funds may defer income taxes for many years on gains attributable to their underlying MLP holdings and the deferred tax liability used to calculate the Funds NAV could vary dramatically from the Funds actual tax liability. Upon sale of an MLP security, the Funds may be liable for previously deferred taxes and, as a result, the determination of the Funds actual tax liability may substantially increase expenses and lower the Funds NAV. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck. VanEck. All rights reserved. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the funds carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing. 3

4 Yield (%) MLPs have provided attractive income MLPs have out-yielded many other asset classes commonly associated with income investing Average Yield (%) 10/31/2006-3/31/ MLPs REITs Utilities U.S. Investment Grade Bonds 10 Year U.S. Treasuries U.S. Equities Source: FactSet. Data as of March 31, Based on average daily yields. Past performance is no guarantee of future results. MLPs represented by the Alerian MLP Index, a widely followed composite index often cited as representative of the broad MLP industry. Alerian MLP Index is meant to represent the MLP industry as a whole. Investment in the Funds may provide exposure to MLPs that differ significantly from Alerian MLP Index exposure. See current VanEck Vectors High Income MLP ETF and VanEck Vectors High Income MLP ETF performance on page 13. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page 14. U.S. government bonds are guaranteed by the full faith and credit of the United States government. Corporate and other bonds are not guaranteed by the full faith and credit of the United States and carry the credit risk of the issuer. U.S. Treasuries are exempt from state and local taxes, but subject to federal taxes. Other securities listed are subject to federal, state and local taxes. Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Prices of bonds change in response to factors such as interest rates and the issuer s credit worthiness, among others. Investing in smaller companies involves risks not associated with investing in more established companies such as business risk, stock price fluctuations and illiquidity. 4

5 Yield Spread (basis points) Currently attractive valuations MLP yield spreads have increased after dropping to near the long-term average at the beginning of MLP Distribution Yield versus 10-Year Treasury Yield 10/2006-3/ Average /31/ Source: FactSet. Data as of March 31, Past performance is no guarantee of future results. MLPs represented by the Alerian MLP Index, a widely followed composite index often cited as representative of the broad MLP industry. Alerian MLP Index is meant to represent the MLP industry as a whole. Investment in the Funds may provide exposure to MLPs that differ significantly from Alerian MLP Index exposure. See current VanEck Vectors High Income MLP ETF and VanEck Vectors High Income MLP ETF performance on page 13. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page 14. 5

6 Distinct focus on yield YMLP and YMLI seek to track Solactive indices that focus on high income master limited partnerships (MLPs ). Their respective indices screen constituents based on business activity, current yield, distribution coverage ratio, and distribution growth. This methodology provides distinct access to high income MLPs and results in comprehensive MLP industry exposure among the two indices. Solactive High Income MLP Index (YMLPTR) Solactive High Income Infrastructure MLP Index (YMLITR) Alerian MLP Index (AMZ)* Alerian MLP Infrastructure Index (AMZI)* Sub-Industry Exposure % (3/31/2017) Storage & Transportation Coal & Consumable Fuels Gas Utilities Equipment & Services Steel Commodity Chemicals Exploration & Production Fertilizers & Agri Chemicals Refining & Marketing Characteristics (3/31/2017) Weighted Average Market Cap ($M) 1, , , ,768.1 Number of Securities Distribution Yield *Alerian MLP indices displayed serve as the benchmark index for six U.S.-listed exchange-traded products as of 3/31/2017. Source: FactSet. Data as of March 31, Index performance is not representative of fund performance. See current VanEck Vectors High Income MLP ETF and VanEck Vectors High Income MLP ETF performance on page 13. See disclaimers on pages 2 and 3.See definitions and index disclaimers on page 14. 6

7 Potential for tax-deferred income 70-90% of MLP distributions have consisted of tax-deferred return of capital 1 Investors do not pay taxes on return of capital distributions, potentially increasing after-tax income However, return of capital will reduce an investor s tax basis, which may result in larger taxable gains on a subsequent sale of shares and, thus, may reduce after-tax returns C-Corp Tax Structure VanEck Vectors High Income MLP ETF and VanEck Vectors High Income Infrastructure MLP ETF are taxed as corporations Allows the ETFs to provide 100% exposure to MLPs and pass through the tax nature of the underlying MLP distributions, while providing shareholders with 1099s, instead of K-1s C-Corp ETFs are taxed at the fund level. Structure also requires ETFs to accrue deferred-tax liabilities which may cause ETFs to underperform benchmarks in rising markets 1 Source: Alerian. This information is not intended to be individual or personalized investment or tax advice. Please consult a financial advisor or tax professional for more information regarding your tax situation. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page 14. 7

8 VanEck Vectors MLP ETFs 8

9 VanEck Vectors High Income MLP ETF (YMLP) VanEck Vectors High Income MLP ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Solactive High Income MLP Index. The index represents MLPs operating in business segments identified by the index provider as high income. The Index then qualifies eligible constituents by current yield, distribution coverage ratio, and distribution growth. Fund Details Fund Ticker YMLP Intraday NAV Ticker YMLP.IV Index Ticker YMLPTR Commencement Date 3/13/2012 Management Fee 0.82% Other Expenses --% Deferred Income Tax and Franchise Tax Expenses 0.06% Net Expense Ratio 0.88% High Income Potential Underlying index targets high income MLPs with attractive yield and distribution characteristics Potential for Tax-Deferred Distributions Fund is taxed as a corporation, allowing for potentially tax-deferred distributions, but may underperform its index during appreciating markets Simplified Tax Reporting Fund shareholders receive Form 1099 instead of the complicated K-1s associated with direct MLP investments Anticipated Distribution Frequency Quarterly Source: VanEck. All information as of March 31, 2017 and subject to change. Van Eck Associates Corporation (the Adviser ) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes (including accrued deferred tax liability) and extraordinary expenses. The Fund s accrued deferred tax liability, if any, is reflected each day in the Fund s net asset value per share and may vary greatly from year to year depending on the nature of the Fund s investments, the performance of those investments and general market conditions. Therefore, any estimate of deferred income tax expense/(benefit) cannot be reliably predicted from year to year. State franchise taxes are separate and distinct from state income taxes. Due to the nature of the Fund s investments, the Fund may be required to file franchise tax returns in several states. The Fund is expected to absorb net operating losses and accrue net deferred tax expense primarily related to unrealized depreciation on investments and state franchise tax liability. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page 14. 9

10 Index methodology Solactive High Income MLP Index Eligible Universe: Must be classified as a high income MLP: Exploration and production of oil and/or natural gas Sale, distribution, and retail marketing of fuels Marine transportation of oil, refined products, and other commodities Direct mining, production, and marketing of natural resources (timber, fertilizers, coal, etc.) Energy services to oil and gas industry Must be listed and traded on a U.S. securities exchange Minimum market cap: $400M; Minimum three-month average U.S. dollar trading volume of $1M Must have a minimum quarterly distribution policy Constituents Ranked by Current Yield, Distribution Coverage Ratio, and Distribution Growth Modified Market Capitalization-Weighted Reconstituted/Rebalanced Annually Source: Solactive. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page

11 VanEck Vectors High Income Infrastructure MLP ETF (YMLI) VanEck Vectors High Income Infrastructure MLP ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Solactive High Income Infrastructure MLP Index. The index represents MLPs the index provider has classified as infrastructure MLPs. The Index then qualifies eligible constituents by current yield, distribution coverage ratio, and distribution growth. Fund Details Fund Ticker YMLI Intraday NAV Ticker YMLI.IV Index Ticker YMLITR Commencement Date 2/12/2013 Management Fee 0.82% Other Expenses --% Deferred Income Tax and Franchise Tax Expenses --% Net Expense Ratio 0.82% High Income Potential Underlying index targets high income MLPs with attractive yield and distribution characteristics Potential for Tax-Deferred Distributions Fund is taxed as a corporation, allowing for potentially taxdeferred distributions, but may underperform its index during appreciating markets Simplified Tax Reporting Fund shareholders receive Form 1099 instead of the complicated K-1s associated with direct MLP investments Anticipated Distribution Frequency Quarterly Source: VanEck. All information as of March 31, 2017 and subject to change. Van Eck Associates Corporation (the Adviser ) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes (including accrued deferred tax liability) and extraordinary expenses. The Fund s accrued deferred tax liability, if any, is reflected each day in the Fund s net asset value per share and may vary greatly from year to year depending on the nature of the Fund s investments, the performance of those investments and general market conditions. Therefore, any estimate of deferred income tax expense/(benefit) cannot be reliably predicted from year to year. State franchise taxes are separate and distinct from state income taxes. Due to the nature of the Fund s investments, the Fund may be required to file franchise tax returns in several states. The Fund is expected to absorb net operating losses and accrue net deferred tax expense primarily related to unrealized depreciation on investments and state franchise tax liability. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page

12 Index methodology Solactive High Income Infrastructure MLP Index Eligible Universe: Must be classified as an infrastructure MLP: Transportation of crude oil, refined petroleum products, and/or other liquids Transportation and/or storage of natural gas and natural gas liquids (NGLs) Transportation, terminaling, and storage of refined petroleum products (including gasoline, diesel, jet fuel, kerosene, and heating oil) Gathering, compressing, dehydrating, treating, processing, marketing of natural gas, and fractionating of NGLs Operating as the general partner of an MLP which primarily engages in any of the businesses listed above Must be listed and traded on a U.S. securities exchange Minimum market cap: $400M; Minimum three-month average U.S. dollar trading volume of $4M Constituents Ranked by Current Yield, Distribution Coverage Ratio, and Distribution Growth Modified Market Capitalization-Weighted Reconstituted/Rebalanced Annually Source: Solactive. See disclaimers on pages 2 and 3. See definitions and index disclaimers on page

13 Performance history VanEck Vectors High Income MLP ETF - as of 3/31/2017 1YR 5YR LIFE 3/13/2012 NAV Share Price Day SEC Yield % Management Fee 0.82% Other Expenses --% Deferred Income Tax and Franchise Tax Expenses 0.06% YMLPTR Net Expense Ratio 0.88% VanEck Vectors High Income Infrastructure MLP ETF - as of 3/31/2017 1YR 3YR LIFE 3/31/2012 NAV Share Price Day SEC Yield % Management Fee 0.82% Other Expenses --% Deferred Income Tax and Franchise Tax Expenses --% YMLITR Net Expense Ratio 0.82% Source: VanEck; FactSet. Data as of March 31, Returns are average annualized total returns, except those for periods of less than one year, which are cumulative. 1 The 30-Day SEC Yield has been adjusted to reflect estimates for return of capital that would result in a reduction of income to the 30-Day SEC Yield calculation which may cause the yield to be negative. Performance data quoted represents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETF incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. The "Net Asset Value" (NAV) of a VanEck Vectors Exchange Traded Fund (ETF) is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF 's intraday trading value. VanEck Vectors ETF investors should not expect to buy or sell shares at NAV. Van Eck Associates Corporation (the Adviser ) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes (including accrued deferred tax liability) and extraordinary expenses. The Fund s accrued deferred tax liability, if any, is reflected each day in the Fund s net asset value per share and may vary greatly from year to year depending on the nature of the Fund s investments, the performance of those investments and general market conditions. Therefore, any estimate of deferred income tax expense/(benefit) cannot be reliably predicted from year to year. State franchise taxes are separate and distinct from state income taxes. Due to the nature of the Fund s investments, the Fund may be required to file franchise tax returns in several states. The Fund is expected to absorb net operating losses and accrue net deferred tax expense primarily related to unrealized depreciation on investments and state franchise tax liability. All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the fund. An index s performance is not illustrative of the Fund s performance. Indices are not securities in which investments can be made. See disclosures on pages 2 and 3. 13

14 Index descriptions and definitions Index returns assume reinvestment of all income and do not reflect any management fees or brokerage expenses associated with fund returns. Returns for actual fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. You cannot invest directly in an index. MLPs: General MLP performance is represented by the Alerian MLP Infrastructure Index and the Alerian MLP Index. Alerian MLP Infrastructure Index is a composite of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index s constituents earn the majority of their cash flow from the transportation, storage, and processing of energy commodities. Alerian MLP Index is a leading gauge of large- and mid-cap energy Master Limited Partnerships (MLPs). The float-adjusted, capitalization-weighted index, which includes 50 prominent companies, captures approximately 75% of available market capitalization. REITs: FTSE NAREIT Equity REITs Index is a broad-based, free-float adjusted market capitalization weighted index consisting of equity real estate investment trusts. Utilities: S&P 500 Utilities Index, calculated with dividends reinvested, consists of widely held utility common stocks of the Standard & Poor 500 Index. U.S. Investment Grade Bonds: Barclays Capital US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities, commercial mortgage-backed securities. U.S. Stocks: S&P 500 Index, calculated with dividends reinvested, consists of 500 widely held U.S. common stocks. Current Yield: ratio of an MLP s distribution divided by its price. Distribution Coverage Ratio: ratio of an MLP s earnings before interest, taxes, depreciation and amortization divided by its distribution. Distribution Growth: a ratio of an MLP s distribution divided by its previous distribution. 14