Other RICs also retain the complete tax pass-through at the fund level by keeping the 25 percent in MLPs, but these other RICs mainly invest the other 75 percent in energy utilities, energy debt or royalty trusts, Chiaro says.
“Things like that aren’t related to the infrastructure play,” Chiaro says. “They can call themselves energy income funds or something similar, but it’s not a true MLP investment. If an investor wanted a dedicated MLP fund, we are the only option available, as far as I’m aware.”
To differentiate itself, Eagle sought out investments that are “roughly securities of MLPs, mirror MLPs, or something that you’d consider an MLP in everything but name,” Chiaro says.
The fund’s recent top holdings were Kinder Morgan Management, Linn Co and Williams Companies Inc.
For compliane reasons, Chiaro says, he couldn’t give performance information about yield and returns. But Morningstar’s website shows EGLAX has a dividend yield of 3.89%, based on forward-looking data. Morningstar says the category average is 3.77%
Limited Number Of Investment Opportunities
As a whole, there are limited investment opportunities in the field. Lipper tracks 25 closed-end MLP funds and 17 exchange-traded products. There are only 19 unique open-end actively managed MLP funds, says Tom Roseen, head of research services at Lipper.
Of those 19 open-end funds, 11 are C corporations and eight are mutual funds. As this area grows, more firms will likely enter the space.
When it comes to returns and tax efficiency, Roseen says nothing beats the performance of an actual MLP, but MLP-related funds can be more convenient and give buyers diversification and make tax-filing easier. A RIC structure also allows groups such as pension funds to invest in MLPs, and it can be part of an individual retirement account.
EGLAX launched in September 2012 and has more than $232 million in assets. The fund has a load of 5.75 percent. The year-to-date return for the fund (as of June 21) was 15.66 percent (and 15.76 percent for the fund’s institutional shares, ticker EGLIX), far above the 2.43 percent collective loss for Lipper’s global natural resources category.
Chiaro says because the fund is new they have received mostly inflows, allowing them to buy the securities they want without having to sell to raise money. “Because we have a lower turnover, we are incurring less taxable gains than we would normally because we have a constant inflow of capital,” he says, and fees are paid from cash received from dividends.