StarbuxInvestor wrote:I use and asset allocation model that has domestic stocks, international stocks, emerging markets stocks, bonds, inflation protected bonds and REITS. I would like add add some MLP (the vehicle I use is FEN). Where would they fit? Whose percentage do I reduce? I assume it would be either REITs, Bonds or Inflation Protected Bonds. Thanks in advance for your insight.
First, since the income for MLPs and CEFs is mostly return of capital holding either in a tax-advantaged account (IRA, 401k, etc) sidesteps the major tax advantages of holding MLPs. For example, the return of capital in a taxable account adjusts the share price and is treated as a capital gain, while in an IRA the same return of capital will be considered ordinary income on withdrawal. I suppose that if you don't plan to withdraw from your IRA for many years then this consideration might not matter.
Personally, we own MLPs and hold them in our taxable account. For the most part they are midcap stocks, so I would classify them as part of your midcap or small cap allocation.
FEN ix not a particularly interest CEF to me based almost solely on the 2.25% expense ratio.
I think but do not know that you will not get a K-1 from FEN which for someone who is afraid of the complications of schedule K-1 might find a positive. The return of capital received from individual MLPs held in a taxable account are taxed as capital gains.
Finally, I think MLPs have had a great run and that because of their high yield their share prices will be hurt by increasing interest rates (whenever that happens). Just look at how how FEN dropped about 10% when Bernanke suggested that quantitative easing might be ending. FEN and other MLPs have quickly recovered but when interest rates really do rise you will see some losses.
Best of luck