Under The Hood: Junior MLP ETF (MLPJ)

The new year has proven to be surprisingly kind to equity investors as “risk on” sentiment has prevailed on Wall Street. Nonetheless, savvy investors remain wary as stocks can just as easily give up all of the profits accumulated on the year, if not more, at the first signs of economic turmoil. With interest rates around the globe expected to remain at ultra-low levels throughout 2013, the hunt for meaningful yield continues, which brings our focus to the newly launched Junior MLP ETF (MLPJ) from Global X [for more MLP news and analysis subscribe to our free newsletter].

Under the Hood

The same issuer behind the cheapest MLP ETF on the market, MLPA, which charges a mere 0.45% expense fee, rolled out the first of its kind Junior MLP ETF on January 14, 2013. The new MLPJ fund marks yet another stride forward in the democratization of the MLP asset class as it looks to offer unprecedented exposure to the small-cap corner of this increasingly popular space.


This sort of strategy may appeal to those who believe small-caps offer greater upside potential especially when considering that the underlying stocks may become the targets of M&A activity. Likewise, the volatility associated with this product may deter some of the more conservative investors.

MLPJ’s price tag comes in at 0.75%, which falls below the average 0.81% management fee charged by exchange-traded products targeting MLPs. This fund is linked to the Solactive Junior MLP Index, which offers exposure to small-cap energy MLPs that are overlooked by some of the more popular ETPs in this space. As of January 11, 2013, the underlying index consisted of 25 MLPs and the three largest components were Suburban Propane Partners, Northern Tier Energy and Alliance Resource Partners [see How Are MLPs Taxed?].

From an industry breakdown perspective, MLPJ’s portfolio will be split up as follows:

  • Exploration & Production: 44%
  • Energy Transportation/Storage: 39%
  • Refining/Distribution: 13%
  • Energy Equipment: 3%

Meet the Competition

Although MLPJ sets itself apart given its focus on small-cap MLPs, this ETF will still face very stiff competition from veterans in the space. Some of the more established products include:

  • JP Morgan Alerian MLP Index ETN (AMJ): This is the biggest offering in the space with over $5.2 billion in assets under management.
  • Alerian MLP ETF (AMLP): As the second biggest offering in the space, AMLP offers investors a way to tap into the MLP asset class without incurring the potential nuances associated with the ETN product structure.
  • Cushing MLP High Income Index ETN (MLPY): This ETN currently boasts the highest dividend yield, coming in at 7.33% annually.

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Disclosure: No positions at time of writing.

This entry was posted in Commodity ETF Analysis, Energy, MLPs, Spotlight and tagged , , , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

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