First Trust Advisors has launched of a new actively managed exchange-traded fund, First Trust North American Energy Infrastructure Fund (nyse arca:EMLP).
The investment objective of the First Trust North American Energy Infrastructure Fund is to seek total return. The Fund’s investment strategy will have an emphasis on current distributions and dividends paid to shareholders. The Fund will invest primarily in companies engaged in the energy infrastructure sector, including publicly-traded master limited partnerships and limited liability companies taxed as partnerships (“MLPs”), MLP affiliates, Canadian income trusts and their successor companies, pipeline companies, utilities, and other companies that derive at least 50% of their revenues from operating or providing services in support of infrastructure assets such as pipelines, power transmission and petroleum and natural gas storage in the petroleum, natural gas and power generation industries.
Energy Income Partners LLC, which First Trust believes is one of the most knowledgeable investment advisors in the energy infrastructure space, serves as the Fund’s Investment Sub-Advisor. The firm managed USD1.6 billion in assets as of 30 April, 2012, and its portfolio management team has many years of combined experience.
“Energy Income Partners and First Trust are pleased to offer investors this new opportunity to invest in the energy infrastructure sector in an ETF format that is actively managed,” says James Murchie, Chief Executive Officer of Energy Income Partners. “This Fund aims to achieve tax efficiency by limiting MLPs to below 25% of the portfolio while at the same time seeking energy infrastructure opportunities across numerous asset classes primarily in North America.”
Energy Income Partners considers energy infrastructure assets with steady, fee-based businesses and relatively low sustaining capital obligations – such as interstate and intrastate pipelines – to be the type of assets which fit best with companies that have higher payout ratios of earnings like MLPs and utilities. Conversely, Energy Income Partners believes that other areas of the energy sector, such as oil and gas exploration, development and production, are less suited for the Fund’s portfolio because they are cyclical and are affected by commodity prices to a greater degree.
“First Trust believes this is an opportune time to invest in energy infrastructure assets in part because of the new technologies that have been developed to extract previously inaccessible natural gas and oil supplies trapped in shale deposits in North America,” says Robert Carey, CFA, Chief Investment Officer of First Trust. “Higher margins for oil and gas drilling have made production companies more amenable to guaranteeing solid returns for long-term contracts to pipeline owners, thereby offering an incentive to add capacity necessary to move their oil and gas to market more quickly. New infrastructure will be required to move natural gas and oil from regions expected to see production growth. Increased spending in other areas of energy infrastructure, such as power transmission, also support opportunities for dividend growth.”
“We think this Fund has some attractive attributes compared to other alternatives in the market, among which is its focus on non-cyclical and regulated assets that have more steady cash flows, the tax efficiency of an ETF structure that limits MLPs to less than 25% of the portfolio and the benefits that can derive from active management,” says Carey.