Global X Funds launches MLP and energy infrastructure ETF

Aug 9th, 2013 | By | Category: Alternatives / Multi-Asset

Just when investors were beginning to think that the flurry of MLP exchange-traded product launches had slowed, Global X Funds, a New York-based provider of ETFs, rolls out a new fund on the NYSE Arca: the Global X MLP & Energy Infrastructure ETF (MLPX).

Global X Funds launches MLP and energy infrastructure ETF

Fund composition

With an expense ratio of 0.45%, Global X’s new fund becomes the lowest cost ETF with Master Limited Partnership (MLP) and midstream energy infrastructure exposure, taking advantage of a fund structure unique to MLP ETFs to provide greater tax efficiency for US-based shareholders.

Due to its structure as a Regulated Investment Company, the fund is not subject to corporate taxes, yet still provides access to the popular MLP sector. MLPX has the added advantage of not requiring K-1 tax filings from investors, only 1099s.

As investors continue to express interest in the United States’ energy infrastructure boom, ETFs serve as an efficient way to capitalise on the industry’s income and growth potential. According to a 2012 report from The International Energy Agency, the US will become the world’s top exporter of oil by 2017.

With domestic energy consumption and production set to increase, investors are poised to benefit from the industry’s toll-road business model, which directly correlates with volume as opposed to commodity pricing.

The fund tracks the Solactive MLP & Energy Infrastructure Index, an index reflecting the performance of both MLPs and energy infrastructure corporations. Midstream energy infrastructure MLPs and corporations principally own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering, and processing natural gas, natural gas liquids, crude oil or refined products.

The weight of any MLP component in the index is capped at 4.5% on index adjustment days. The excess weight is allocated proportionally to all index components whose weight is not capped. All MLPs as a group receive an aggregated weight of 24% as of the semi-annual adjustment days.

All remaining energy Infrastructure companies are weighted according to free float market capitalisation. The three index components with the largest free float market capitalisation are assigned a fixed weight of 9%. The company with the fourth largest receives a fixed weight of 8% and the fifth largest company in terms of free float market capitalisation is assigned a fixed weight of 7%. The sixth largest receives 6.5%, while all other components are capped at 4.5%.

All non-MLP companies as a group receive a weight of 76% on the semi-annual adjustment days. The weight of a non MLP index component may be decreased if its average daily value traded in the last three months is below $10 million, the minimum weight is 2.5%. The minimum number of index components is 20 and there have to be at least 13 companies in the index which are not registered as an MLP as of the selection day in order to comply with index diversification rules.

Bruno del Ama, chief executive officer of Global X Funds, said: “We are pleased to continue to innovate in the MLP space. MLPX provides investors with lower-cost access to midstream energy infrastructure MLPs and corporations in an ETF structure without many of the tax complexities inherent in MLP investing.”

MLPX complements Global X’s existing MLP ETFs, which include the Global X MLP ETF (MLPA) and the Global X Junior MLP ETF (MLPJ), both listed on the NYSE Arca.

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