First Trust North American Energy Infrastructure Fund (EMLP) seeks to track the Alerian MLP Infrastructure Index, which measures the performance of energy infrastructure master limited partnerships (MLPs) and corporations involved in midstream energy operations like pipelines, storage facilities, and transportation networks across North America.
How It Works
EMLP uses a passive, market-capitalization-weighted approach to replicate its benchmark index. The fund holds MLPs and energy infrastructure companies that generate cash flows from fee-based contracts rather than commodity price exposure. Holdings are rebalanced quarterly to maintain index alignment. The portfolio typically contains 25-50 positions concentrated in pipeline operators, natural gas distributors, and energy storage companies with stable, predictable revenue streams.
Key Features
- Focuses on fee-based energy infrastructure assets that generate steady cash flows regardless of oil and gas price volatility
- Provides exposure to tax-advantaged MLP structures while avoiding K-1 tax complications through C-corporation wrapper
- Offers attractive 3.09% dividend yield from companies with historically stable distribution policies and contracted revenue streams
Risks
- This ETF can lose value if energy infrastructure demand declines due to renewable energy transitions or regulatory restrictions on fossil fuel transportation
- Interest rate increases can significantly impact MLP valuations since these high-yielding securities compete with bonds for income-focused investors
- Energy sector concentration means the fund could decline 40-50% during broad energy market downturns, as seen in 2014-2016 and 2020
Who Should Own This
Best suited as a satellite holding (5-15% of portfolio) for income-focused investors with 3+ year time horizons seeking energy infrastructure exposure and quarterly distributions. High risk tolerance required due to energy sector volatility and interest rate sensitivity. Appropriate for investors wanting energy diversification without direct commodity exposure.