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New ETF With Yield but No Taxes?

Wednesday, 25 Aug 2010 | 12:53 PM ET

A master limited partnership (MLP) of ETFs (exchange-traded funds), which debuted Wednesday and will be traded on the Big Board, gives investors “liquidity and transparency” and a “tax-free” yield, Kenny Feng, president and CEO of Alerian Capital, told CNBC Wednesday.

A Pipeline to Profits
The Alerian MLP ETF (AMLP) begins trading today, with Kenny Feng, Alerian President & CEO

“They are actually partnerships that are structured that enable them to engage in these activities without any level of taxation,” said Feng of the Alerian MLP ETF, which offers exposure to the Alerian MLP Infrastructure Index (AMZI). “So they do trade on the public exchanges.”

Year to date, the Alerian MLP Index is up 11.74 percent, compared with the S&P 500, which is down 6.42 percent.

Feng, who began covering MLPs at Goldman Sachs in 2003, was named one of the top traders under 30 by Trader magazine in 2007.

The Alerian MLP is invested in transportation, storage and processing of natural resources—steel pipelines and storage tanks—and includes holdings in such companies as Kinder Morgan Energy Partners , Enterprise Product Partners , Enbridge Energy Partners , Energy Transfer Partners and Magellan Midstream Partners .

Feng said the investor gets the benefits of the MLP structure, which combines the tax perks of a limited partnership in that the partnership doesn't pay taxes from the profit, with the liquidity of a publicly traded company. However, Feng noted that he had no IRS ruling on the tax situation involving the MLP.

Another benefit of this product, Feng said, is that investors don’t need to deal with Schedule K-1 IRS forms. He added that buying into this fund is a passive way of investing in the sector.

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