The growing interest in energy infrastructure investments, particularly among institutional investors like pension funds, stems from their potential for stable income and inflation protection. For individual investors, accessing this asset class usually means investing in master limited partnerships (MLPs), which can complicate tax reporting with Schedule K-1 forms and varied taxation on gains.
One alternative to direct MLP investments is the NEOS MLP & Energy Infrastructure High Income ETF (MLPI). This fund seeks to provide MLP and energy infrastructure exposure while limiting direct MLP ownership to 25% of its portfolio, thereby enabling shareholders to receive a simpler Form 1099 for tax reporting instead of a K-1. The ETF’s structure helps maintain conventional tax treatment and minimizes tax complications.
MLPI further enhances its income potential through an options strategy that sells covered calls, capitalizing on market volatility. As of the latest report, MLPI boasts a notable 14.19% distribution rate, primarily categorized as return of capital (ROC), allowing for deferred taxation until shares are sold.
While the ETF offers a convenient way to invest in the sector with simpler tax implications, investors should remain cautious of its high distribution rate and the potential limitations in capital appreciation due to the options strategy.
