ALPS ALERIAN MLP ETF (AMLP)

Transcription

1 ALPS ALERIAN MLP ETF (AMLP) $10.27 USD Risk: High Zacks ETF Rank NA Fund Type Issuer Benchmark Index MLP ETFs ALPS ALERIAN MLP INFRASTRUCTURE INDEX AMLP Sector Weights Date of Inception 08/25/2010 AUM (million) $9, Number of holdings in the ETF 27 Assets in top ten holdings 70.49% Expense Ratio 0.85% Dividend Yield 8.41% Price Chart Price Fundamentals of AMLP Current Price $ Week High $ Week Low $9.99 NAV (10/31/2017) $ Yr ETF Ret (11/17/2017) % Risk Statistics Beta (against S&P 500) 0.95 Standard Deviation 28.02% R % Zacks Opinion The fund provides exposure to a portfolio of energy MLPs through a single investment. These MLPs are considered popular among investors compared to other energy-based products, thanks to their high payout potential. MLPs do not pay taxes at the entity level and are thus able to pay out most of their income in the form of dividends. AMLP is also an appropriate satellite holding for income-seeking investors, as most other traditional fixed income securities presently generate paltry yields. Further, with consistent growth in the energy industry owing to new developments in the field of unconventional energy, AMLP energy MLP ETF represents an opportunity to benefit from this growth. However, in a rising rate environment, MLPs might fall out of favor among yield-seeking investors. Lower oil price is another cause of concern for the product. Key Points Largest product in the MLP ETF space Gross expense ratio of 4.85% is quite high High dividend yielding product Reasons to Buy Low correlation to other asset classes and attractive yield Reasons to Sell Underperforms in a rising rate scenario; oil price worries The data on the front page and all the charts in the report represent market data as of 11/17/2017, while the report's text is as of 10/06/2017

2 Holdings Breakdown The fund is heavily concentrated in the top 10 holdings in which it puts over 70% of the assets. From an asset capitalization perspective, large cap (55%) and mid cap (41%) securities constitute almost the entire portfolio, while small cap securities account for just 4% of the total. Performance Like many other MLP products in the space, the ETF started 2014 on a strong note and continued to stay afloat amid rising rate concerns and a dip in oil and gas prices. However, the fund started going downhill from 2015 as investors bet on Fed rate hike in the wake of stronger economic data in the U.S, and oil price crash. After being abandoned in 2015 and in the initial phase of 2016, MLPs gained momentum with the oil price rebound in late 2016 and the long-time lure of the segment its dividend. But again a steep decline in oil prices has led the fund to lose about 10.1% so far this year (as of Sep 29, 2017). The fund was down about 9.3% (as of Sep 29, 2017). The product yields a robust 7.83% in annual dividend (as of Sep 29, 2017). AMLP Top 5 Holdings Weight % Magellan Midstream Partners L.P % 2-Year Comparative Enterprise Products Partners L.P % Sunoco Logistics Partners LP 9.54% MPLX LP 8.51% Williams Partners LP 7.97% Investment Objective AMLP tracks the Alerian MLP Infrastructure Index before fees and expenses. The index measures the performance of common stocks of the master limited partnerships, which are primarily engaged in the business of infrastructure. Analysis The ETF primarily seeks maximization of current income in the form of dividend, along with a scope of maximizing total income in the form of capital appreciation. The product has an expense ratio of 0.85% (before deferred taxes); but the gross expense ratio is extremely high at 4.85%, thanks to deferred tax liabilities. However, the product has significant liquidity as it trades in an average daily volume of 4.5 million shares. Fundamentals AMLP AMJ EMLP Zacks Rank Price $10.27 $26.50 $24.31 AUM (million) $9, $3, $1, Expense Ratio 0.85% 0.85% 0.95% Dividend Yield 8.41% 7.32% 3.97% Assets in top % NA 36.68% Beta YTD % Price Change % % -3.68% Description Launched in August of 2010, ALPS Alerian MLP Index fund (AMLP) is a passively managed exchange traded fund designed to provide a broad exposure to equity shares with a focus on resembling the risk-return characteristics of master limited partnerships.

3 Detailed Analysis Investment Case for AMLP Despite hailing from the energy space, MLPs put up a great fight in 2014 against the oil price slump, thanks to their low correlation with the underlying commodity and the U.S. shale oil boom. However, the winning streak reached the verge of a reversal as MLPs entered The largest MLP ETF AMLP, which added about 5.8% in 2014 against a 50% decline in oil prices, lost about 27.9% in This was partly due to rising rate concerns in the U.S. and partly because of oil price plunge. After being abandoned in 2015 and in the initial phase of 2016, MLPs gained momentum with the oil price rebound in late 2016 and the long-time lure of the segment its dividend. MLPs are structured as pass-through entities. This means that they do not pay taxes at the entity level and are thus able to pay out most of their earnings to investors. Thus, like all high income products, MLPs also tend to react negatively to a rise in interest rates initially. Also, MLPs depend heavily on external financing to run their operations as they distribute most of their income as dividends. As a result, in case of a rising interest rates environment, their financing costs increase, which in turn diminish their ability to keep distribution payments at the existing level. However, there are plenty of opportunities in this space. One of the reasons is that many MLPs use fixed rate debt for the majority of their borrowings. Another reason could be that investors hold MLPs for a long time due to tax consequences and thus they do not have a significant adverse reaction to rising interest rates unlike other rate sensitive assets like utilities and REITs. Further, MLPs have low correlations with many other asset classes including equities and commodities and thus add diversification benefits to the portfolio. Most MLPs are involved in processing and transportation of energy commodities such as natural gas, crude oil, and refined products, under long-term contracts. So, effectively they are like toll-takers, whose revenues depend on volumes flowing through the pipes and not on the commodity price. Thus, MLPs represent a better way to benefit from the growth in the unconventional energy space. This is why AMLP could be an intriguing bet for investors with a long-term view. However, lower oil prices for the last two and a half years have still been causing mayhem in the MLP business. The near-term key risk lies with the uncertainty in oil price recovery despite the extension of the output curb deal by the OPEC. Surging U.S. crude output is bothering oil prices. Added to this, the Fed is expected to hike interest rates further in Altogether, the direction of oil prices and U.S. treasury yields will likely regulate the future movement of MLP ETFs. Then again, its high-yield appeal may keep the space afloat. AlternativesAlerian MLP Index ETN (AMJ) AMJ is the most popular ETN in the MLP space with about $3.63 billion in assets under management. This ETN tracks the performance of the companies in the midstream energy MLP sector. The note charges investors 85 basis points a year in fees for its services and pays out an attractive yield of 6.75% (as of Sep 29, 2017). E-TRACS Alerian MLP Infrastructure Index (MLPI) MLPI focuses on the infrastructure space within the MLP world. The note tracks the Alerian MLP Infrastructure Index, which comprises 25 mid-stream energy infrastructure MLPs. This note also charges 85 basis points a year for expenses and pays out a yield of 6.69% (as of Sep 29, 2017).

4 Glossary ACTIVE MANAGEMENT: ALPHA: AMERICAN DEPOSITORY RECEIPT: AUTHORIZED PARTICIPANTS: AVERAGE YIELD TO MATURITY: BASKET: BETA: BID/ASK SPREAD: CONTRARIAN: CREATION UNIT: DIVIDEND YIELD: EFFECTIVE DURATION: ENHANCED INDEXING: EXCHANGE TRADED FUND: EXCHANGE-TRADED NOTE: EXPENSE RATIO: FUND OF FUNDS: FUNDAMENTAL INDEXING: INDEX: INVERSE ETF: INVESTMENT STYLE: LEVERAGED ETF: A portfolio management strategy where the manager uses variety of skills and attributes (like top-down approach, bottom-up approach, value investing, growth investing or absolute returns strategy) in the portfolio so that the fundoutperforms the benchmark index. A measure of outperformance that can be calculated as the return of the fund minus the benchmark s return. A positivealpha indicates the fund has outperformed the benchmark index whereas negative alpha means underperformance. A negotiable non-us security that trades in the US financial market. An entity chosen by an ETF sponsor to undertake the responsibility of obtaining the underlyingassets needed to create an ETF. Authorized participants are typically large institutional organizations, such as market makers orspecialists. The expected rate of return on a fund s portfolio if it is held until the maturity while reinvestingall coupon payments at the bond yield. A portfolio of several stocks or securities that are selected for the inclusion in the fund with different weightings. A measure of risk compared to the market benchmark. A beta of less than 1 indicates that the fund is less volatile than themarket and vice versa. The difference between the highest price that a buyer is willing to pay (often called bid price) for theunderlying assets of securities of the fund and the lowest price that a seller is willing to accept (often called as offer or ask price) forit. An investment style that goes against prevailing market trends (i.e. against the thinking of many) by buying assetsthat are performing poorly and then selling when they perform well. A set of securities or underlying assets that can be created or redeemed by Authorized Participants for a certainnumber of ETF shares with the fund or trust. The creation units can vary in size ranging from 25,000 to 600,000 shares each. A financial ratio that measures how much a company pays out in dividends each year relative to its share price.it can be calculated as annual dividend per share divided by price per share. A measure of a fund s interest-rate sensitivity. The longer the duration, the more sensitive is the fund to the changes in interest rates. An investment idea that attempts to amplify the returns of an underlying asset or the fund with lowertracking error. Enhanced indexing combines elements of both passive and active management. The fund represents a basket of securities (that typically track an index), and is listed and tradeslike stocks on an exchange. ETFs can be traded throughout the day in amounts as little as one share. The note is a senior, unsecured, unsubordinated debt issued by a major bank. It has a maturity dateand is backed only by the credit of the issuer. The ETN however, do not actually hold any security, instead an issuing bankpromises to pay to investors the amount reflected by the index s performance (minus fees). An annual fee that the fund or ETF charge from the investors in order to provide exposure to the underlyingasset. A fund that invests in other funds instead of investing directly in stocks, bonds or other securities. A type of equity index in which stocks or securities are selected based on fundamental metrics such as revenue, dividend rates, earnings or book value. An imaginary portfolio of securities representing a particular market or a portion of it. An ETF that provides opposite (inverse) exposure in the underlying index though use of various financial andmoney market instruments over a specified period of time. This ETF is similar to holding a short position in order to take profit fromthe falling prices. A different style of investing such as growth, value and blend in a basket of asset. An ETF that uses various financial instruments to amplify the returns (up to 3 times) of the underlying index over a specified period of time.

5 LIQUIDITY: MARKET CAPITALIZATION: NET ASSET VALUE: PASSIVE MANAGEMENT: PORTFOLIO TURNOVER: R-SQUARED: SECTOR ROTATION: The degree to which an asset or security can be bought or sold in the market without affecting the asset s price. Liquidity is characterized by a high level of trading activity. Represents the aggregate value of the fund or underlying asset. Value of an ETF on per share basis and is calculated as total asset minus total liabilities divided by number of shares. A portfolio management strategy where the fund is the mirror image of the performance of the benchmark index. A percentage of underlying assets bought and sold in a given year. A measure of correlation with the market benchmark. An R-Squared of 100 indicates perfect correlation of the fund that of market while an R-Squared of 0 indicates no correlation. A strategy that involves moving from one sector to another by selling the underlying assets or securities ofa sector and purchasing securities or assets in another. SEC YIELD: A standard yield that the bond funds must pay to its shareholders based on the most recent 30- day period covered by the fund s filings with the SEC. SHORT ETF: STYLE BOX: TARGET DATE FUND: TRACKING ERROR: TREASURY INFLATION PROTECTED SECURITIES: VOLATILITY: VOLUME: YIELD CURVE: WEIGHTED MATURITY: An investment strategy that offers to take short position in the underlying index through various financial instruments. A visual representation of the fund, created by Morningstar, to determine risk-return structures of the portfolio. A style box is comprised of nine squares, or categories, that classify securities by size (small, mid and large cap) along the vertical axis and by value, growth and blend characteristics along the horizontal axis. A fund that invests exclusively in the assets or securities with a certain defined maturity. A measure of how closely a portfolio follows the benchmark index. It is calculated as the difference between the returns of fund portfolio and the benchmark index. The bonds that are issued by the U.S. Treasury to protect against inflation.these securities pay interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. A measure of risk calculated by the annualized daily movement in the fund price. The lower the volatility of the fund the better it is. The number of shares traded in the market during a given period of time. A line that plots the interest rates of bonds having equal credit quality but differing maturity dates. The yield curveprovides an idea of future interest rate change and economic activity. It generally compares the three-month, two-year, five-yearand 30-year U.S. Treasury debt The remaining time to maturity of the underlying securities in a portfolio. A fund with a short averagematurity is more sensitive to current interest rate fluctuations than one with longer average maturity. 10/06/2017 Disclosure This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Please read the prospectus carefully. The data on the front page and all the charts in the report represent market data as of 11/17/2017, while the report's text is as of 10/06/2017