Dallas, Texas-based Cushing Asset Management, with USD3.3 billion under management, has just launched its first four ETFs based on the Cushing Indices which have exposure to master limited partnerships (MLPs) of 24 per cent, allowing for income generation within US tax rules.
MLPs are specifically a US construction through the taxation regime designed to help build out infrastructure, pipeline and natural resource transportation infrastructure in the US.
Todd Sunderland, Partner, Head of Risk Management and Quant Strategies at Cushing Asset Management explains that the firm has been sub advisers for mutual funds with NY Life and managed separately managed accounts and private funds across its business lines for some time. Cushing, founded in 2003, has been in the index business since 2009.
There have also been ETNs with JP Morgan and Morgan Stanley but these new ETFs of their own are, Sunderland says, “a recognition of how the investing world is progressing”.
Of the seven indices the firm manages, three are MLP indices, most famously the Cushing 30. Energy MLPs and midstream corporations are companies engaged in gathering, processing, transportation and storage of natural gas, crude oil, and other related hydrocarbons.
Cushing uses MLPs to offer sector exposure to the energy sector and yield. The Cushing Energy & MLP ETF (XLEY) seeks to replicate the performance of the Cushing Energy Index by tracking the performance of large cap energy companies selected from the S&P 500 Energy Index and master limited partnerships (MLPs) selected from the Cushing 30 MLP Index. The remaining ETFs in the suite are the Cushing Energy Supply Chain & MLP ETF; the Cushing Transportation & MLP ETF and the Cushing Utility & MLP ETF.
“So, if they have or want passive exposure to these sectors it should work for them,” Sunderland says, commenting that the environment for the equity markets and energy at the moments is pretty volatile.
The dividend from these ETFs is paid monthly so investors can reinvest it through a dividend reinvestment process which brings a benefit for dollar cost averaging. The yield on these new ETFs is close to 5 per cent for three of them.
“We think energy is a very important arena and having some exposure there may make sense for folks and may offer some inflation type hedging as well,” he says.
“The framework is less about convincing someone it is appropriate for them but to provide different ETFs and if they have interest say ‘here is a product that may work for you in those areas of the market.”