Investors seeking high yields from midstream energy infrastructure now have a simplified alternative to traditional master limited partnerships through the InfraCap MLP ETF (AMZA). Master limited partnerships typically offer attractive yields of 7% or more but require investors to file complex Schedule K-1 tax forms detailing partnership income, deductions, and credits. The actively managed exchange-traded fund, launched in 2014 by Infrastructure Capital Advisors, provides exposure to energy MLPs while eliminating the tax documentation burden.
The timing for such investment vehicles appears favorable given recent monetary policy shifts. The U.S. Federal Reserve cut its benchmark interest rate by 25 basis points last month and signaled potential additional reductions, creating an environment that may favor income-focused investments. As risk-free Treasury yields decline, investors are increasingly considering alternatives like energy infrastructure.
Midstream energy companies represent a compelling segment within the broader resources sector. These operators serve as the connecting link between upstream exploration and production and downstream refining and retail operations. Their business involves pipelines, storage facilities, and processing operations that generate fees based on volume moved rather than commodity prices, making them less sensitive to oil and gas price fluctuations.
Current geopolitical conditions may further strengthen the case for midstream investments. Russia's invasion of Ukraine has disrupted Russian energy supply chains, raising concerns about broader market stability. Additional policy uncertainties emerged when the Trump administration suddenly pivoted on its Ukraine policy, suggesting potential for further disruptions in global energy markets.
The InfraCap MLP ETF distinguishes itself through active management led by Jay D. Hatfield, Infrastructure Capital Advisor's founder, CEO and portfolio manager. Hatfield brings nearly three decades of experience in securities and investment industries, covering investment banking, real estate, and energy infrastructure. He also manages other specialized ETFs including the InfraCap REIT Preferred ETF (PFFR) and Virtus InfraCap U.S. Preferred Stock ETF (PFFA), available at https://www.virtus.com.
AMZA employs several strategies to enhance returns for risk-tolerant investors. The fund utilizes modest leverage, typically between 20% to 30%, to amplify its MLP-focused beta and accentuate the vehicle's risk-reward profile. Option writing strategies are deployed to bolster passive income generation, though these approaches carry tail risk—the threat of obligatory payments if underwritten events materialize at distribution extremes.
The fund's monthly distribution structure aligns with various financial strategies, providing regular income streams while maintaining exposure to energy infrastructure. This approach allows investors to access the strong cash flow characteristics of midstream operations without confronting partnership taxation complexities. With the Federal Reserve shifting toward lower interest rates, passive income investments like AMZA may see increased investor interest as traditional fixed-income alternatives become less attractive.
