The ETRACS Alerian MLP Exchange Traded Note (NYSE: AMU – $16.54) seeks to replicate – net of expenses – the Alerian MLP Index, which measures the performance of 50 prominent energy master limited partnerships. Its constituents earn most of their cash flow from the transportation, storage, processing or production of energy commodities, but depressed prices have resulted in reduced system throughput at many MLPs. A good number of the companies in this space have utilized bolt-on acquisitions to expand geographically and continue to grow their distributable cash flows, despite the challenging operating environment. However, some regions of expansion have not been panning out as well as previously anticipated, and MLPs operating in those regions have seen their financial performance fall off. In some instances, companies have needed to slash their quarterly distributions in an effort slow the cash burn and shore up their balance sheets and, thus, has affected the dividends of the companies comprising the index. The short-range prospects for these partnerships are also negative.
Virtually all the companies in the index are U.S. based, with 3.4% of the portfolio located in Europe. The MLP’s cover a wide market capitalization mix.
The top ten holdings of the UBS-backed fund consist of the following:
As are most energy-related investments, AMU has not performed well over the past few years and the price change is negative by 15.6% over the past twelve months. However, the fund provides a well-above average coupon payout of $1.20 per unit annually, currently yielding 7.2%, thereby mitigating the loss to some degree. A 7% allocation of AMU in a well-diversified income portfolio should improve over time along with a growing economy and energy price recovery.