J.P. Morgan Asset Management has added an exchange traded note to its lineup, enabling investors to maintain exposure to MLPs.
JPM today began offering the Alerian MLP Index ETN (AMJB), which matures in 2044. The new note tracks the Alerian MLP Index (AMZ), a capped, float-adjusted, cap-weighted index that serves as the leading measure of energy infrastructure MLPs.
AMJB is the successor to the J.P. Morgan Alerian MLP Index ETN (AMJ), which also tracks AMZ and matures in May 2024. Current AMJ investors may want to consider AMJB’s launch in determining how to maintain exposure to MLPs beyond AMJ’s maturity.
Constituents in AMZ, the underlying index, earn the majority of their cash flow from midstream activities involving energy commodities. Notably, the index has outperformed the S&P 500 on a total-return basis for the past three straight years.
“AMZ was the first real-time MLP index when it launched in 2006, and it remains the leading gauge of MLP performance. It continues to be widely used by industry stakeholders and financial professionals,” Stacey Morris, head of energy research at VettaFi, said.
See more: “Led by MLPs, Midstream Is Energy Bright Spot in 2023”
Investing in MLPs via the ETN Structure
AMJB and AMJ are both structured as exchange traded notes (ETNs). Like ETFs, ETNs trade on an exchange and are designed to track an underlying asset.
ETNs are senior, unsecured debt securities issued by a bank. Unlike ETFs, ETNs do not own the underlying assets that their return tracks. Furthermore, the return of an ETN is linked to a market index or other benchmark.
The ETN structure was developed in 2006. ETNs made it easier for retail investors to invest in hard-to-access instruments, particularly within commodities and currencies.
While both will provide a Form 1099 for taxes (i.e., no Schedule K-1), a key difference between MLP ETNs and ETFs is tracking error. Tracking error can be a concern with MLP ETFs given fund-level taxation. However, ETNs minimize tracking error.
ETNs generally do not pay any dividend or interest rate payments to investors because they do not hold any portfolio securities, but MLP ETNs do pay a variable coupon linked to the cash distributions paid by the MLPs in the index.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMJ and AMJB, for which it receives an index licensing fee. However, AMJ and AMJB are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMJ and AMJB.
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