Is the JP Morgan/Alerian MLP ETN Worth A Look (AMJ, NSH, KMP)?

Early in the summer JP Morgan launched an exchange traded note which tracks the master limited partnership index. The ETN is called the JP Morgan/Alerian MLP ETN (NYSE: AMJ).

Master limited partnerships have been around a while, but always were a rather neglected area of the market. They are limited partnerships or LLCs whose units (not shares) trade on the stock exchange like normal stocks. They are mostly in the business of oil and/or natural gas transportation and storage.

Like REITs, MLPs are required to pass through the vast majority of their income directly to shareholders to avoid taxation at the corporate level. However unlike REITs they are taxed at the personal level like a partnership (which requires a K-1).

AMJ is the first ETF or ETN that has been devoted to this space. There should not be any tracking error as it is an ETN, but a major concern is capturing the dividend yield had by holding MLPs outright. The high yield (normally 6%-8%) in the space has been the major draw in investing in MLPs. So far AMJ has paid out two distributions which on a annualized basis are in line with the more general MLP market which includes names like Kinder Morgan (NYSE: KMP) and NuStar (NYSE: NSH).

AMJ has a 0.85% expense ratio, which is roughly average for specialty ETFs/ETNs. If an investor wants access to the MLP market, feels the tax hassle outweighs the tax benefit of holding MLPs outright or doesn’t want to bet on one or two individual MLPs this can be a worthwhile high yielding investment vehicle.

AMJ is up 0.6% today at $24.70/share.