UBS offers access to MLPs through fast-growing ETN market

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UBS notes offer exposure to MLP market

UBS has listed a new exchange-traded note (ETN) in the US, tracking the performance of energy infrastructure master limited partnerships (MLPs), boosting the bank's offering in this growing investment class.

The UBS E-Tracs 2x Alerian MLP Infrastructure Index offers leveraged exposure to the underlying MLPs and twice the distribution returns, which give a return of around 13% per annum after fees, according to Christopher Yeagley, US head of equity structured products at UBS in Stamford, Connecticut.

UBS already has a note offering delta one exposure to the same index, which it launched in April. The note has already sold about $40 million, and Yeagley says they expect to be at the $100 million mark in a couple of months. He also hopes the leveraged note will garner the same interest.

Sales in the existing product have been evenly split between retail investors and institutions such as pension funds, endowments and asset managers. Yeagley says he is unsure what type of investor the new note will attract, adding that investors will be attracted to the 13% yield.

"A lot of investors in the US don't know what MLPs are still, but if you look at the Alerian MLP Infrastructure Index over the past 10 years, the annual returns have been north of 20%. A lot of that comes in the form of distributions," says Yeagley.

"MLPs in the US are not taxed at the corporate level... ETNs are a very efficient way of accessing the asset class. MLPs distribute the majority of any income they earn at the corporate level and they are in a market focused on building up the energy infrastructure in the US. A lot of investors think there is a long-term story behind that."

Yeagley says the MLP market in the US is underserved, and in response to that, UBS plans to launch a suite of products to provide access to the market.

The ETN market in the US has seen rapid growth, doubling in the last 12 months, according to Yeagley, and he expects that to continue as there are fewer restrictions on ETNs than other exchange-traded products such as exchange-traded funds. "There is a significant amount of innovation in the ETN market," he says.

 

 

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