Barclays, the U.K.-based bank that backs the iPath family of ETNs, today will launch the firm’s second ETN focused on master limited partnerships—but this one under its “ETN+” brand—expanding its footprint in a segment of the market anchored by the $5.4 billion JP Morgan Alerian MLP ETN (AMJ).
The Barclays ETN+ Select MLP ETN (ATMP) is linked to the Atlantic Trust Select MLP Index, and focuses on what the company calls the “higher end of the MLP space,” or essentially midstream MLPs that show the highest credit rating quality. That’s to say that ATMP, tapping into 20 to 100 MLPs, is designed to complement the exposure offered by Barclay’s other ETN—the broader, two-month-old iPath S'P MLP ETN (IMLP).
Securities in ATMP must make it past screens that look for long-term credit rating; cash flow; size—as measured by free-float market capitalization; and trading value, according to the prospectus . The portfolio may include both limited partnership interests in MLPs and interests in the general partner of a MLP.
ATMP, costing 0.95 percent, comes just two months after the launch of IMLP, an ETF also backed by Barclays, but belonging to the iPath family of strategies that counts on BlackRock for marketing. The “ETN+” family of ETNs is designed to be more narrowly focused than its iPath counterparts.
MLPs are U.S. energy assets created in the mid-1980s and have been used by many as safety investments, much like an allocation to U.S. Treasurys, and one that is known to deliver solid yields.
They are essentially partnerships that trade on a stock exchange like a corporation, but without federal income tax liability at the entity level, because they derive most of their revenues from steady fees such as interest, dividends, real estate rents, transportation and storage.
Because MLPs are well known for the steady dividends they deliver, they have grown in popularity with investors who are looking for income at a time of compressed yields in the more traditional fixed-income space. But MLPs aren't all created equal, and ATMP looks to weed out the riskier fare, Adam Karpf, portfolio manager and managing director at Atlantic Trust told IndexUniverse.
"MLPs have been a very successful asset class over the past 10 years, and with the success of MLPs, the asset class has attracted some nontraditional assets such as coal, propane, refining assets," Karpf, whose firm is behind the index benchmarking ATMP, said. "We think investors buy MLPs with the objective to get exposure to midstream infrastructure businesses like pipelines and processing assets."
"By removing some of the lower quality nontraditional assets and focusing on midstream assets, the index provides access to higher quality, stronger growth MLPs that also carry low risk compared to other assets," he added. "You can't paint all MLPs with the same brush. There are differences in quality levels between the subsectors."
ATMP currently pegs its benchmark’s average yield at 5.5 percent, with annualized returns clocking in at 12.5 percent, the prospectus said. What's more, MLPs as an asset class have seen a "consistent" distribution growth rate of 6 to 8 percent a year in the past decade, Karpf noted.
The Atlantic index, which was launched in February, rebalances quarterly.
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