MLPs are not included in S&P500

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gougou
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MLPs are not included in S&P500

Post by gougou »

I’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield. I discovered that none of them are included in either S&P 500 or even VTI.

Does anyone know the reason?
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David Jay
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Re: MLPs are not included in S&P500

Post by David Jay »

Because they are not stocks.

The SP500 is a stock index. CRSP Total US Stock Market index (which VTI tracks) is a stock index.

You can purchase an ETF that holds MLPs (instead of stocks), here is a list of the 20 largest MLP ETFs: https://etfdb.com/etfs/industry/mlp/

(I hope you don't mind volatility, glancing through the linked list shows typically a 35% - 40% YTD loss)
Last edited by David Jay on Sat Aug 29, 2020 7:44 pm, edited 1 time in total.
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Re: MLPs are not included in S&P500

Post by AlohaJoe »

gougou wrote: Sat Aug 29, 2020 7:20 pm I’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield. I discovered that none of them are included in either S&P 500 or even VTI.

Does anyone know the reason?
The S&P (and every other index provider) typically only includes common stock and excludes MLPs, BDCs, LLCs, closed-end funds, royalty trusts, SPACs, ADRs, convertible bonds, preferred stock, unit trusts, and other such things that maybe technically be listed on an exchange but aren't really common stock.

Anyway, regular investors are no doubt very happy they aren't getting K-1s every year and needing to figure out how to file their taxes.
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Taylor Larimore
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Re: MLPs are not included in S&P500

Post by Taylor Larimore »

gougou wrote: Sat Aug 29, 2020 7:20 pm I’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield. I discovered that none of them are included in either S&P 500 or even VTI.

Does anyone know the reason?
gougou:

The criteria to become a S&P 500 Index stock has your answer I've underlined:

Market capitalization must be greater than or equal to US$8.2 billion

Annual dollar value traded to float-adjusted market capitalization is greater than 1.0

Minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date

Must be publicly listed on either the New York Stock Exchange (including NYSE Arca or NYSE American) or NASDAQ
(NASDAQ Global Select Market, NASDAQ Select Market or the NASDAQ Capital Market).

Securities that are ineligible for inclusion in the index are limited partnerships, master limited partnerships and their investment trust units, OTC Bulletin Board issues, closed-end funds, exchange-traded funds, Exchange-traded notes, royalty trusts, tracking stocks, preferred stock, unit trusts, equity warrants, convertible bonds, investment trusts, American depositary receipts, and American depositary shares.

Source: Wikipedia

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Taylor
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Re: MLPs are not included in S&P500

Post by Escapevelocity »

You might want to consider the ETF MLPX which holds primarily MLPs but is structured in such a way as to avoid K-1 issuance.
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Re: MLPs are not included in S&P500

Post by David Jay »

gougou wrote: Sat Aug 29, 2020 7:20 pmI’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield.
I recommend you read the Wiki on MLPs, especially the section on taxation, here: https://www.bogleheads.org/wiki/Master_ ... artnership
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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gougou
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Re: MLPs are not included in S&P500

Post by gougou »

David Jay wrote: Sat Aug 29, 2020 7:40 pm
gougou wrote: Sat Aug 29, 2020 7:20 pmI’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield.
I recommend you read the Wiki on MLPs, especially the section on taxation, here: https://www.bogleheads.org/wiki/Master_ ... artnership
Thanks, this is quite useful to me. MLPs have some tax advantages so I'll probably just handpick a few and own them directly.
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Re: MLPs are not included in S&P500

Post by rossington »

gougou wrote: Sun Aug 30, 2020 1:32 am
David Jay wrote: Sat Aug 29, 2020 7:40 pm
gougou wrote: Sat Aug 29, 2020 7:20 pmI’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield.
I recommend you read the Wiki on MLPs, especially the section on taxation, here: https://www.bogleheads.org/wiki/Master_ ... artnership
Thanks, this is quite useful to me. MLPs have some tax advantages so I'll probably just handpick a few and own them directly.
Are you holding them in a non-taxable account?
Or as taxable? (after your deferred basis has been returned as an ROC...thus your tax deferral is only temporary).
Do you understand the K-1? (if in a non-taxable account you don't need your accountant but as a taxable entity you certainly will...hopefully they are familiar with MLP's).
Do you know that you might be required to pay state taxes on your portion of the partnership's income?
Do you understand UBTI and the possible UBIT?
The distributions are very good but you must understand the tax complexities...especially taxable vs. non-taxable and how long you hold them.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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David Jay
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Re: MLPs are not included in S&P500

Post by David Jay »

gougou wrote: Sun Aug 30, 2020 1:32 am
David Jay wrote: Sat Aug 29, 2020 7:40 pm
gougou wrote: Sat Aug 29, 2020 7:20 pmI’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield.
I recommend you read the Wiki on MLPs, especially the section on taxation, here: https://www.bogleheads.org/wiki/Master_ ... artnership
Thanks, this is quite useful to me. MLPs have some tax advantages so I'll probably just handpick a few and own them directly.
Did you read the section in the a Wiki where it explains you will have to pay individual state income tax in every state where the partnership has operations? You have received many warnings and seem to be brushing them aside. Proceed with care!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: MLPs are not included in S&P500

Post by petulant »

gougou wrote: Sun Aug 30, 2020 1:32 am
David Jay wrote: Sat Aug 29, 2020 7:40 pm
gougou wrote: Sat Aug 29, 2020 7:20 pmI’ve been researching some MLPs recently such as EPD, MMP, ET because of their high yield.
I recommend you read the Wiki on MLPs, especially the section on taxation, here: https://www.bogleheads.org/wiki/Master_ ... artnership
Thanks, this is quite useful to me. MLPs have some tax advantages so I'll probably just handpick a few and own them directly.
They aren't really tax advantages. They're tax differences. When you exit you will have a hefty tax bill, and if you try to delay exit the distributions will eventually be almost completely taxable.
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Re: MLPs are not included in S&P500

Post by abuss368 »

Escapevelocity wrote: Sat Aug 29, 2020 7:39 pm You might want to consider the ETF MLPX which holds primarily MLPs but is structured in such a way as to avoid K-1 issuance.
I remember reading about this. Many years ago when we speculated with individual stocks we had 5-6 MLPs. Tax time was a bear and I believe the return was 1-2 inches thick.

I learned and do not miss those days.
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92irish
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Re: MLPs are not included in S&P500

Post by 92irish »

MLPX ETF (has both MLPs and also corporate midstreams). Corporate midstreams are like Kinder Morgan, Enbridge, TC energy. The corporate midstreams are included in stock indexes, such as the S&P 500 or Intl' Indexes. If you are looking for broad midstream energy exposure this ETF will do the trick.

MLPA ETF (has only MLP's, none of the corporate names). So, if you just want the publicly traded partnership names, such as Enterprise Product Partners, Energy Transfer, Magellan, in one package this is the one for you. In both cases, MLPX and MLPA will avoid the K-1/UBTI/state tax issues if that is a concern for a retirement type account, or otherwise prefer simplicity.

The downside of the ETFs are the expense ratios of around .45% which is low in this sector, but of course higher relative speaking. I hold some MLPA ETF in some retirement accounts, and one MLP directly (Energy Product Partners) in a taxable brokerage account for income.
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Re: MLPs are not included in S&P500

Post by Escapevelocity »

92irish wrote: Sun Aug 30, 2020 3:12 pm MLPX ETF (has both MLPs and also corporate midstreams). Corporate midstreams are like Kinder Morgan, Enbridge, TC energy. The corporate midstreams are included in stock indexes, such as the S&P 500 or Intl' Indexes. If you are looking for broad midstream energy exposure this ETF will do the trick.

MLPA ETF (has only MLP's, none of the corporate names). So, if you just want the publicly traded partnership names, such as Enterprise Product Partners, Energy Transfer, Magellan, in one package this is the one for you. In both cases, MLPX and MLPA will avoid the K-1/UBTI/state tax issues if that is a concern for a retirement type account, or otherwise prefer simplicity.

The downside of the ETFs are the expense ratios of around .45% which is low in this sector, but of course higher relative speaking. I hold some MLPA ETF in some retirement accounts, and one MLP directly (Energy Product Partners) in a taxable brokerage account for income.
I believe you meant Enterprise Product Partners EPD
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Re: MLPs are not included in S&P500

Post by pshonore »

Escapevelocity wrote: Sun Aug 30, 2020 3:22 pm
92irish wrote: Sun Aug 30, 2020 3:12 pm MLPX ETF (has both MLPs and also corporate midstreams). Corporate midstreams are like Kinder Morgan, Enbridge, TC energy. The corporate midstreams are included in stock indexes, such as the S&P 500 or Intl' Indexes. If you are looking for broad midstream energy exposure this ETF will do the trick.

MLPA ETF (has only MLP's, none of the corporate names). So, if you just want the publicly traded partnership names, such as Enterprise Product Partners, Energy Transfer, Magellan, in one package this is the one for you. In both cases, MLPX and MLPA will avoid the K-1/UBTI/state tax issues if that is a concern for a retirement type account, or otherwise prefer simplicity.

The downside of the ETFs are the expense ratios of around .45% which is low in this sector, but of course higher relative speaking. I hold some MLPA ETF in some retirement accounts, and one MLP directly (Energy Product Partners) in a taxable brokerage account for income.
I believe you meant Enterprise Product Partners EPD
Or possibly Energy Transfer Partners (ET)
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Re: MLPs are not included in S&P500

Post by retiringwhen »

abuss368 wrote: Sun Aug 30, 2020 1:29 pm Many years ago when we speculated with individual stocks we had 5-6 MLPs. Tax time was a bear and I believe the return was 1-2 inches thick.

I learned and do not miss those days.
I concur, My FIL left my wife some MLP's when he died, the estate liquidated them, but it was a horrible mess, took two years to get the tax returns right and it generated a significant QBI LOSS that will wipe out any QBI income we have for probably the rest of our lives.....

The 1041 had at least 80 pages just for the 2 MLPs.

Our 1040 had another 20 pages from the estate pass-through for the QBI loss and K-1s.

The 2018 Tax law changes made the QBI loss situation happen.

MLPs are not for the faint of heart and definitely not for an amateur tax preparer. When it comes to taxes, be prepared to pay a good tax accountant. No neighborhood H&R block guy no matter how small your investment.

BTW, these were 2 pretty standard MLP's that invested in gas pipelines and long-haul fiber.
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Re: MLPs are not included in S&P500

Post by abuss368 »

retiringwhen wrote: Sun Aug 30, 2020 4:36 pm
abuss368 wrote: Sun Aug 30, 2020 1:29 pm Many years ago when we speculated with individual stocks we had 5-6 MLPs. Tax time was a bear and I believe the return was 1-2 inches thick.

I learned and do not miss those days.
I concur, My FIL left my wife some MLP's when he died, the estate liquidated them, but it was a horrible mess, took two years to get the tax returns right and it generated a significant QBI LOSS that will wipe out any QBI income we have for probably the rest of our lives.....

The 1041 had at least 80 pages just for the 2 MLPs.

Our 1040 had another 20 pages from the estate pass-through for the QBI loss and K-1s.

The 2018 Tax law changes made the QBI loss situation happen.

MLPs are not for the faint of heart and definitely not for an amateur tax preparer. When it comes to taxes, be prepared to pay a good tax accountant. No neighborhood H&R block guy no matter how small your investment.

BTW, these were 2 pretty standard MLP's that invested in gas pipelines and long-haul fiber.
That is crazy and I feel your pain. I prepared my fair share of tax returns with MLPs. Way to much complexity and it always appeared as if the investments themselves never performed that great. I think the structure may work better for the general partner and no so much the limited partner.
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Re: MLPs are not included in S&P500

Post by nisiprius »

EPD = Enterprise Products Partners = "Enterprise Products Partners L.P." which "is an American midstream natural gas and crude oil pipeline company"

MMP = Magellan Midstream Partners which "owns ammonia and petroleum pipelines."

ET = Energy Transfer Partners = "a company engaged in natural gas and propane pipeline transport."

So, all energy.

How are MLPs better than stocks? AMJ is the JPMorgan Alerian MLP Index ETN, and the orange curve is the Morningstar category average, and they track reasonably well together. The green line is the plain vanilla stock-based Vanguard Energy Sector ETF, and it tracks pretty closely with the other two and happens to have outperformed both of them, slightly.

Source

Image

What's the big advantage of the MLP supposed to be over investing in the energy sector the simple way?
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Re: MLPs are not included in S&P500

Post by pshonore »

nisiprius wrote: Sun Aug 30, 2020 6:43 pm EPD = Enterprise Products Partners = "Enterprise Products Partners L.P." which "is an American midstream natural gas and crude oil pipeline company"

MMP = Magellan Midstream Partners which "owns ammonia and petroleum pipelines."

ET = Energy Transfer Partners = "a company engaged in natural gas and propane pipeline transport."

So, all energy.

How are MLPs better than stocks? AMJ is the JPMorgan Alerian MLP Index ETN, and the orange curve is the Morningstar category average, and they track reasonably well together. The green line is the plain vanilla stock-based Vanguard Energy Sector ETF, and it tracks pretty closely with the other two and happens to have outperformed both of them, slightly.

Source

Image

What's the big advantage of the MLP supposed to be over investing in the energy sector the simple way?
I think the Alerian MLP Total Return Index (AMZX) might be a better indicator. That includes distributions which the AMZ does not. The AMZX had an initial value of 100 of 12/29/1995. It ended 2019 at 1139.08; that's an average annual return of almost 10.7 % - the AMZ had an avg annual return of 3.3% for the same period . Of course the performance since 1/1/20 for both has been abominable.
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Re: MLPs are not included in S&P500

Post by rossington »

nisiprius wrote: Sun Aug 30, 2020 6:43 pm EPD = Enterprise Products Partners = "Enterprise Products Partners L.P." which "is an American midstream natural gas and crude oil pipeline company"

MMP = Magellan Midstream Partners which "owns ammonia and petroleum pipelines."

ET = Energy Transfer Partners = "a company engaged in natural gas and propane pipeline transport."

So, all energy.

How are MLPs better than stocks? AMJ is the JPMorgan Alerian MLP Index ETN, and the orange curve is the Morningstar category average, and they track reasonably well together. The green line is the plain vanilla stock-based Vanguard Energy Sector ETF, and it tracks pretty closely with the other two and happens to have outperformed both of them, slightly.

Source

Image

What's the big advantage of the MLP supposed to be over investing in the energy sector the simple way?
The lure has always been the distribution yield (and the basis being tax deferred) for better or for worse. For sure it is not investing in the energy sector the simple way.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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