SteelPath Fund Advisors today launched three mutual funds that invest in master limited partnerships, the first of their kind allowing retail investors to gain access to the MLP universe.
SteelPath MLP Income Fund Ticker:(MLPDX), SteelPath MLP Alpha Fund Ticker:(MLPAX), and SteelPath MLP Select 40 Fund Ticker:(MLPFX) represent the first mutual fund family to provide access to the income-generating partnerships that tend to concentrate in natural resource-related ventures.
The three SteelPath funds invest in energy infrastructure MLPs, including companies that own and operate the physical assets that transport crude oil, refined petroleum products and natural gas.
MLPs are attractive to some investors because of a structure that distributes most of the earnings directly to investors. But the rub against MLPs has always been the complex tax management consequences that include the issuance of k-1 instead of 1099 tax forms.
That specific issue is resolved by holding the MLPs inside a mutual fund, according to Gabriel Hammond, SteelPath founder and manager of the three new funds.
The mutual fund format, he explained, provides “1099 reporting, qualified
dividend treatment of taxable distributions, low investment minimums, and full daily liquidity.”
By holding the MLPs in a mutual fund, Mr. Hammond has also navigated around the rules that prohibit investors from holding MLPs in qualified retirement accounts, which he sees as a brand new market for the strategy.
The funds' $3,000 investment minimums are also expected to broaden the potential market of retail-class investors, he said.
“The funds are an especially compelling new option for IRA and 401(k) plans that were previously unable to benefit from the potential steady returns and high income offered by MLPs,” he said.
In terms of specific strategies, the Income fund is designed for inflation protection, a higher distribution yield compared to equity alternatives such as real estate investment trusts, and it provides the highest level of current income of the three new funds.
The Select 40 fund is a portfolio of 40 energy infrastructure MLPs that seeks investment returns that outperform the broader equity market.
The Alpha fund is a concentrated portfolio of 20 energy infrastructure MLPs that applies a securities selection process designed to uncover those MLPs with the best risk-adjusted opportunities.
In 2009, the Alerian Index of MLPs gained 76%, and the index had an average annualized return of 23% since 2000.
SteelPath Capital Management, which has more than $300 million under management, was established in March through a spinoff of the asset management arm of Alerian Capital Management.
Absent the asset management business, Alerian is concentrating on the growth of its index operation, data and analytics business lines.
Mr. Hammond, who also founded Alerian, is a non-executive chairman and shareholder of that company.
