Quick Read – MLPI combines MLPs, pipeline corporations, and covered calls: Keeping MLP exposure below 25% preserves RIC status while the options overlay boosts portfolio income. – Most of the headline yield comes from options: The underlying portfolio yields about 3.44%, while…
e covered call strategy lifts the forward distribution rate to 14.76%, with much of the payout currently classified as return of capital. – Early performance has been encouraging: Although the ETF has a limited track record, MLPI has outperformed AMLP on a total return basis since launch while avoiding the tax drag that has historically contributed to AMLP’s tracking error. – Master limited partnerships (MLPs) have long been favorites among income investors thanks to their pass-through structure and typically generous cash distributions. Many also own energy infrastructure assets such as pipelines, storage terminals, and processing facilities, businesses that have historically held up relatively well during inflationary environments because their revenues are often backed by long-term contracts or regulated fee structures
The biggest drawback to owning individual MLPs is the Schedule K-1. Unlike a standard Form 1099, the K-1 can be considerably more complicated and often arrives late in tax season. To avoid that hassle, many investors simply buy an ETF instead.
The largest by far is the Alerian MLP ETF (AMLP), which manages more than $12 billion in assets. Unfortunately, AMLP comes with its own drawbacks. Despite offering a healthy 7.79% trailing 12-month distribution yield, the fund has historically exhibited significant tracking error versus its underlying index.