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InfraCap MLP ETF: The 20% Yield Is About To Get Cut Again

Published Thu, 03 Oct 2019 13:43:35 -0400 on Seeking Alpha

Beware that you do not lose the substance by grasping at the shadow. - Aesop
The InfraCap MLP ETF (AMZA) gets a lot of attention in the energy space, but it's often for the wrong reasons. Its 20% distribution yield often attracts income-starve investors enchanted by the idea of huge monthly payments only to be left disappointed and lighter in the wallet. AMZA's decision to maintain an unsustainable distribution schedule has forced the fund to make multiple cuts to those distributions over the years and the next one might not be very far off.
Background AMZA seeks to provide exposure to a portfolio of midstream master limited partnerships with an emphasis on high income. It's mostly made up of large-cap MLPs, but its largest holding is the Global X MLP & Energy Infrastructure ETF (MLPX).

Most of the top holdings' yields fall in the 6-10%, which is great for an MLP portfolio, but it doesn't nearly approach AMZA's 20% distribution yield. In order to make up the difference, the fund uses a modest amount of leverage (about 20-30%) to enhance the portfolio's beta. In addition, it uses options strategies in order to increase income. AMZA is actively-managed which helps separate itself in an industry that's largely dominated by passively-managed funds. The expense ratio of 2.40% also sets it apart but in a bad way. The fund charges a 0.95% management fee with the remainder being the cost of implementing the leverage and options strategies.
Income vs. Distributions... Read more