Source MLP ETF approaches $50m mark less than a month after launch

Jun 13th, 2013 | By | Category: Equities

Source’s latest fund, which has raced to almost $50 million in assets in less than a month, shows there’s still plenty of room for innovation in the exchange-traded funds (ETFs) space, especially here in Europe.

Source MLP ETF approaches $50m mark less than a month after launch

Source’s new MLP ETF is well on its way to reaching the $50m assets mark, less than a month after its launch.

Launched just three and a half weeks ago by London-based Source, the Source Morningstar US Energy Infrastructure MLP UCITS ETF has proved popular with investors who have funnelled millions into it.

The decision to passport the fund into a number of other financial markets in Europe – it is has just been approved for sale to retail investors in Austria, Finland, France, Germany, Italy, Norway and Sweden – can only help, as more investors will now get the chance to invest in this innovative fund.

So why has it proved so popular? Well, firstly, it is the first product in its sector here in Europe. As in any business, first-mover advantage always helps. (Why it has taken quite so long for this asset class to become available to UK/European investors is surprising – there are dozens of articles on this website banging on about the successes of MLP ETPs in the US!)

Secondly, and more importantly, the fund provides access to one of the hottest investment themes right now. Linked to the Morningstar MLP Composite Index, it provides exposure to US energy infrastructure via Master Limited Partnerships (MLPs), which are benefiting from a profound structural shift in the US energy landscape.

Specifically, MLPs offer three key characteristics which make them highly appealing to investors:

1)  MLP returns have exhibited low correlation with the overall stock market over past two decades. This attribute is highly prized for the purposes of portfolio diversification and risk reduction.

2)  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 tax treatment at the investor level affords similar advantages.

3)  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.

The fund is listed on the London Stock Exchange and comes with a management fee of 0.50% per annum and a swap fee of 0.75%. It is available in reinvesting (ticker: MLPS) and distributing (ticker: MLPD) share classes.

For more information on this fund, read David Stevenson’s latest column: Source hits the spot with new US energy infrastructure play.

*The favourable tax treatment of MLPs is only directly relevant to US-domiciled investors. However, the product has been structured via a total return swap so as to best capitalise on these favourable tax features.

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