AMZA: 9% Yield With No K-1 And Few Concerns About Interest Rates

AMZA is an ETF investing solely in MLPs offering a 1099 rather than K-1s.

AMZA is returning a 9% yield with probable increases in the payments coming over the

next year.

Concerns over energy prices have led to an oversold condition of MLPs which bodes well

for future increases in the price of MLPs and AMZA.

The InfraCap MLP ETF (NYSEARCA:AMZA) is an energy limited partnership that seeks total

returns through investments in publicly-traded master limited partnerships and limited liability

companies taxed as partnerships. Jay Hatfield, the manager of the fund, maintains that the target

of the fund is to outperform the Alerian MLP Infrastructure Index by 2-4% annually over time.

The Alerian MLP Index has returned 19.5% annually since 1996 and 15.8% annually over the

past 10 years. AMZA's total return over the 6-month period in existence has been -12%, which

has outperformed the index by 1.70%. This poor performance of the Alerian index and AMZA is

due to investor concern over the decline in oil and gas prices.

Photo Source: Williams & Williams Partners Analyst Day

The expense ratio of this ETF is 1.05% (Morningstar). AMZA currently is paying $2.02 per

share annually, which represents a 9% yield at its current price of around $22.00 per share. This

yield is not constrained or sensitive to interest rates such as mortgage REITs and other interest

rate sensitive stocks. This ETF has the further advantage of offering one 1099 rather than a series

of K-1s. So, one can purchase this ETF in retirement and tax-advantaged accounts without

worrying about K-1s and going over the $1,000.00 limit for returns which would require tax

payments in this type of investment.

The top 10 holdings of the ETF are listed below:

Source: Morningstar found on the TD Ameritrade web site.

NAV of AMZA has increased 3% for the first 4 months of 2015 after suffering a loss for the first

several months of its existence. Hatfield maintains that the MLP sector is oversold as a result of

the decline in energy prices and has created an attractive entry point for long-term investors since

the MLPs in AMZA have little direct exposure to commodity prices. He also believes that

distributions will grow 6-7% in 2015 and that this will allow the fund to outperform the Alerian

benchmark.

Photo Source: Williams & Williams Partners Analyst Day

Hatfield reported that the gathering and processing sub-sector of the industry is more sensitive to

NGL and natural gas prices. This sub-sector has underperformed the group as a whole, and the

fund has been underweight in this sector. Since he believes that the commodity market will

stabilize over the next 12 months, the fund has begun to weight this sub-sector toward the norm.

He maintains this should help the fund outperform over the next few months. The chart showing

the performance of the fund for the first few months of its existence is displayed below:

Source: Interactive Brokers

Conclusion

This ETF is a good alternative to investing directly in MLPs especially for those who wish to

have this industry represented in one's retirement fund. Since it offers one 1099 rather than K-1s,

it also makes tax returns easier for those who purchase it in one's regular account. One does pay

a small penalty of around 1% for this advantage, but they also get the expert investment acumen

of Jay Hatfield who manages the ETF. There is the further benefit of not being directly linked to

interest rates that have been creating concerns with REITs, mortgage REITs and BDCs.

This is a good time to invest in this ETF since the drop in energy prices has lowered the price of

MLPs and hence this ETF. As energy prices begin to get back to normal, the prices of the

underlying MLPs of AMZA should drive the price of this ETF up as well. For example, the

largest holding, Williams Partners L.P. (NYSE:WPZ), just went up 20% today (5/13/15). This

bodes well for the sub-sector and hence for AMZA. Just remember, this ETF only represents a

limited sub-sector of the energy industry and therefore one should put a small percentage of their

total investment here.