An MLP ETF With A Hedge

Income investors who are familiar with master limited partnerships usually prize this asset class for the high dividend yields and income-generating opportunity set. Another advantage of MLPs, at least during various points during the history of the asset class, is that these instruments are usually less sensitive to fluctuations in natural gas and oil prices than the shares of producers of those commodities.

Mastering The MLP Thesis

That thesis was dealt a blow during the oil bear market of 2014 and 2015, when many MLPs and the relevant exchange traded funds sagged as bad or worse than traditional equity-based energy investments. A new ETF could help if that scenario arises again.

The Amplify YieldShares Oil-Hedged Master Limited Partnership (MLP) ETF AMLX debuted on Thursday. AMLX's premise is simple: Own high-yield MLPs while hedging exposure to oil prices.

AMLX's Strategy And Methodology

“Recent history has shown that oil price declines can have a significant impact on MLP share prices,” Christian Magoon, CEO of Amplify ETFs, said in a statement. “AMLX is an ETF designed to hedge the impact of oil on MLPs while seeking to provide income and professional management of the portfolio.”

Home to 19 stocks, AMLX also removes the need for investors to deal with the pesky K-1 tax form, a common nuisance with MLPs and other commodities exchange traded products.

“Investors in MLPs typically assume a secondary risk exposure related to oil prices. The risk is that oil price declines may erode the stock price returns of MLPs and perhaps the income potential of MLPs over the long term. We hedge against oil price declines when investing in MLPs to seek to reduce portfolio volatility and correlation to oil prices,” the company said.

Data suggest MLPs sport closer correlations to crude prices than many investors believe. Over the past 10 years on days in which crude futures fell by 2 percent or more, MLPs fell as well, according to Amplify data.

The new ETF charges 0.85 percent per year, or $85 on a $10,000 investment. 

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