Best MLP ETF Options for Energy Infrastructure Investors

Master limited partnerships—commonly known as MLPs—have long attracted investors seeking high-income distributions from the energy sector. For those interested in building exposure to these structures, finding the best mlp etf requires understanding how different funds handle taxation, fees, and portfolio composition. The three leading exchange-traded products offer distinct approaches, each with specific advantages and limitations for different investor goals.

Understanding MLPs and Why ETF Exposure Matters

MLPs operate in midstream energy operations, primarily handling the transportation of oil, natural gas, and refined products. Their structure allows them to pass earnings to unitholders with minimal taxation at the corporate level. However, purchasing individual MLP shares requires navigating complex tax documentation and substantial due diligence.

Exchange-traded funds and exchange-traded notes streamline this process by offering diversified exposure through a single holding. Yet this convenience comes with important tradeoffs. Unlike direct MLP ownership—where portions of distributions may qualify as return-of-capital and defer taxation—ETF and ETN distributions face different tax treatment based on the fund’s structural design.

Comparing the Three Best MLP ETF and ETN Options

The market currently offers several quality products, but three stand out for investors seeking simplicity and reasonable cost structures. Each addresses the MLP investing puzzle differently, making the choice dependent on your specific priorities.

Alerian MLP ETF: Direct Holdings with a Corporate Wrapper

The Alerian MLP ETF operates as the largest product in its category by tracking approximately 25 energy infrastructure partnerships. Rather than structuring itself as a traditional fund, this product operates as a corporation—a choice that significantly impacts performance and tax reporting.

The fund’s portfolio concentrates on the three largest operators: Magellan Midstream Partners, Enterprise Products Partners, and Energy Transfer Partners, which collectively account for over 30% of holdings. This market-cap weighting means smaller operators receive minimal representation.

The corporate structure creates a dual-taxation scenario. Distributions received by the fund face corporate tax first, then shareholders receive taxed dividends on remaining amounts. This arrangement creates headaches on returns—historical data showed the fund trailing its underlying index by approximately 2.4 percentage points annually over a five-year period. However, investors receive standard 1099 tax forms rather than complex K-1 schedules, reducing tax-filing complexity.

For investors prioritizing simplicity over maximum long-term appreciation, this best mlp etf option provides transparency without demanding specialized tax knowledge.

JPMorgan Alerian MLP ETN: Broader Market Exposure

Exchange-traded notes function as debt securities issued by banks rather than traditional investment funds. JPMorgan’s Alerian MLP ETN tracks a 44-company index representing approximately 85% of the industry’s total market capitalization, offering substantially broader exposure than the Alerian ETF.

As a debt security, the ETN avoids the double-taxation structure affecting the Alerian ETF. Distributions receive ordinary-income treatment, and shareholders receive simple 1099 forms. The market-cap-weighted methodology, however, still concentrates exposure—the top three holdings represent just over 39% of portfolio value.

The ETN structure relies on JPMorgan’s creditworthiness; as a systemically important financial institution, this typically provides comfort to most investors. The broader index composition makes this option attractive for investors seeking more complete sector exposure, though concentration among large operators remains substantial.

Credit Suisse Cushing 30 MLP ETN: Equal-Weight Structure

The Cushing 30 index employs a fundamentally different methodology: equal weighting across 30 midstream operators selected by proprietary analysis of cash-flow generation and operational metrics. This approach delivers significantly greater exposure to smaller and mid-sized operators compared to market-cap-weighted alternatives.

Equal-weighted structures inherently increase volatility. During strong energy-sector periods like 2014, this structure delivered superior returns; during downturns like 2015, losses accelerated beyond cap-weighted peers. A current annualized yield of approximately 6.5%—lower than competitors—reflects this small-cap tilt, as smaller operators typically distribute less to unit holders.

This vehicle suits investors willing to accept higher volatility in exchange for potential capital appreciation from energy-price movements and increased midstream activity. It represents the best mlp etf for growth-oriented investors rather than income-seekers.

Tax Considerations: The Real Cost of MLP Fund Investing

A critical reality often overlooked: MLPs purchased directly offer tax advantages that disappear when accessed through ETFs and ETNs. Individual MLP distributions frequently include return-of-capital components, reducing your cost basis and deferring taxation until you sell positions.

ETF and ETN distributions lack this benefit. Alerian MLP ETF shareholders face dividend taxation after corporate-level taxes diminish distributions. JPMorgan and Credit Suisse product shareholders face ordinary-income taxation on distributions—often a less favorable outcome than direct ownership.

Long-term investors in taxable accounts typically benefit from purchasing a diversified MLP portfolio directly rather than through exchange-traded products, despite the added administrative burden. Tax-deferred accounts like 401(k) plans or IRAs reduce this disadvantage, making ETFs and ETNs more competitive in those contexts.

Making Your Best MLP ETF Decision

Selecting the right product requires balancing convenience against tax efficiency and performance objectives:

For simplicity-focused investors: The Alerian MLP ETF’s straightforward 1099 reporting appeals to those unfamiliar with MLP tax mechanics, despite its underperformance relative to its benchmark.

For broad exposure: The JPMorgan Alerian ETN tracks a more complete industry representation while maintaining reasonable concentration levels.

For growth potential: The Credit Suisse Cushing product offers meaningful small-cap exposure and higher volatility suitable for those betting on energy-sector expansion.

No single best mlp etf serves all objectives. Your choice depends on whether you prioritize tax simplification, income generation, growth potential, or some combination thereof. Understanding these tradeoffs ensures you select the product genuinely matching your investment philosophy and timeline.