Barclays launches energy infrastructure-focused iPath S&P MLP ETN

Jan 4th, 2013 | By | Category: Alternatives / Multi-Asset

Barclays has announced the launch of the iPath S&P MLP ETN (IMLP) on the NYSE Arca.

Barclays launches iPath S&P MLP ETN (IMLP) on NYSE Arca

Energy infrastructure-focused MLPs typically invest in critical assets such as oil and gas pipelines and storage facilities.

The exchange-traded note (ETN) is designed to provide investors with a way to gain exposure to the performance of the S&P MLP Index, providing investors with broad-based exposure to the energy infrastructure-focused Master Limited Partnership (MLP) market.

Energy infrastructure-focused MLPs are typically owners and operators of key infrastructure assets involved in the storage, supply and delivery of energy. Examples include oil and gas pipelines.

The ETN’s underlying benchmark, the S&P MLP Index, is designed to provide exposure to leading partnerships that trade on major US exchanges and are classified in the GICS Energy Sector and GICS Gas Utilities Industry. The index includes both MLPs and publicly traded limited liability companies which have a similar legal structure to MLPs and share the same tax benefits as MLPs.

The index currently has 56 constituents, the largest of which are Enterprise Product Partners, Kinder Morgan Energy, Plains All American Pipeline, Magellan Midstream, and Energy Transfer Equity.

Commenting on the launch, Kevin Burke, Head of Investor Solutions at Barclays, said: “We are pleased to expand our suite of exchange-traded notes with the first iPath ETN to offer exposure to the MLP market. Investors have shown considerable interest in the MLP market, and the iPath S&P MLP ETN will provide exposure in an exchange-traded format.”

Kevin Murphy, Head of US Equity and Funds Solutions at Barclays, added: “As investors continue to seek out investments with higher yield, this ETN offers the potential for income along with upside appreciation via index-linked exposure to US energy infrastructure-focused partnerships.”

Barcalys’ new iPath product enters a highly competitive market segment, which already includes a bewildering number of MLP-focused ETFs and ETNs. Existing products range from the giant JPMorgan Alerian MLP Index ETN (AMJ) and Alerian MLP ETF (AMLP) products, to the racy UBS ETRACS 2xMonthly Leveraged Long Alerian MLP Infrastructure Index ETN (MLPL) and the low-cost Global X MLP ETF (MLPA). In total, there are over a dozen exchange-traded products based on MLP indices.

Despite the existing competition, however, Barclays clearly anticipates demand from investors. Indeed, MLPs offer three key characteristics that make them highly appealing to investors.

First, MLP returns have exhibited low correlation with the overall stockmarket over past two decades (the S&P MLP Index’s correlation with the S&P 500 over the past five years has been 0.56). This attribute is highly prized for the purposes of portfolio diversification and risk reduction.

Second, MLPs operate under a highly efficient tax structure which allows them to avoid corporate taxation since they must pass through their income to shareholders in the form of distributions. This allows for some hefty yields (the S&P MLP Index currently yields 5.6%). The tax treatment at the investor level affords similar advantages.

Third, MLP-type assets, such as oil pipelines and gas storage facilities, typically command a regional monopoly and operate toll-based business models with inflation hedges built into their contracts. This makes them extremely useful in inflationary environments.

Investors looking to access these benefits should note the difference between ETNs and ETFs: ETNs are essentially debt instruments bearing credit risk to the issuer, in this case Barclays Bank PLC.

The ETN has an annual fee of 0.80%.

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