U.S. Pipeline ETF Hit by Third-Largest Outflow on Tax Snag

(Bloomberg) -- The largest exchange-traded fund tracking America’s energy pipelines incurred its third-biggest outflow on record after regulators put a stop to a key tax credit for master limited partnerships.

More than $118 million left the Alerian MLP ETF yesterday, the biggest one-day withdrawal since July 2017, according to data compiled by Bloomberg. The $8.6 billion ETF, ticker AMLP, fell as much as 11 percent intraday after the Federal Energy Regulatory Commission signaled a big shift in how MLPs are allowed to account for income taxes.

AMLP holds U.S.-listed large and mid-cap energy stocks that earn the majority of their cash flow from the transportation and storage of commodities.

MLPs, most of which are energy companies, pass through almost all of their profit in the form of income. Because such entities get favorable fiscal treatment, investors can get a better after-tax return than by investing in conventional corporations.

Analysts said the ruling was actually narrower than Thursday’s tumultuous trading session suggested, and that the majority of pipelines in the U.S. are not FERC-regulated. The fund closed 5 percent lower.

Nevertheless, midstream companies still face what Morgan Stanley calls a “quagmire” of near-term issues, including rising rates, slow fund flows and “persistent funding needs.” Investors have pulled $700 million from the fund so far this year.

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