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Look at this expense ratio! Invesco SteelPath MLP Select 40 A MLPFX . . . 6.57%!
Anyone know why the expense ratio is so high on Invesco SteelPath MLP Select 40 A (MLPFX)? I owned the fund to get K-1-free access to MLP's inside of an IRA. However, 6.57% seems insane! What's up with that? Also, for those of you who like MLP's and want exposure within an IRA (without getting hit with K-1's), what do you use? I will probably switch to an ETF.
Because they can? *shrug* Heck, there's also a 5.50 front-end load and .25 12(b)-1 fee as well, just in case you really wanted to twist the knife into your gut. Run fast, run far.
In such cases, I'd definitely use an ETF .. there are several. Just check to make sure it's not levered, if you are trying to be conservative in your income holdings.
Apart from a Fidelity MMF (which can't be THAT expensive!) I don't see any funds in their Portfolio holdings. Just straight equities from what I can tell.
I bit the bullet and bought into an MLP NOT in my IRA. I don't like waiting for the k-1, but the stock is worth the "hassle." The company lets you sign-in to access the k-1 before it comes in the mail. THIS year, the k-1 came atrociously late via the USPS.
Looking at MLPFX Prospectus, it's organized as a taxable C-corp (not as a typical passthrough fund), so the ER includes potential deferred income tax liability from unrealized gains/losses. Is that a real expense? May be someone else can throw a light on this twist. https://connect.rightprospectus.com/Invesco/TADF/00143K277/P
If any fund (mutual fund, closed-end fund, or ETF) owns more than 25% MLPs, the fund will be taxed as a corporation. Accordingly, there are two types of MLP funds – those structured as RICs, which own up to 25% MLPs, and those structured as corporations (or C-Corp funds), which tend to be 90-100% MLPs.
MLPFX is of the latter type. Thus, like and individual investor in an MLP, it owes taxes on income generated by the MLP. The tax gimmick in MLPs is that their dividends are treated as returns of capital. So one does not owe taxes immediately on this income. MLPFX passes these ROCs through to its investors.
Ultimately the tax bill comes due. The return of capital reduces the cost basis of an MLP so that when it is sold, the gain is not based on the purchase price but on the purchase price minus the "tax-free" divs received. Since MLPFX is taxed as a corporation, it will owe those taxes.
"Upon a Fund’s sale of a portfolio security, the Fund will be liable for previously deferred taxes." Prospectus
These deferred tax expenses are reported as expenses of the fund as they are accrued, i.e. at an estimated rate of 5.44% per year. That's the cost of creating a wrapper fund to convert MLP K1s into 1099s.
One disadvantage of investing in a C-Corp fund instead of individual MLPs is the potential for tax drag to weigh on fund performance relative to its underlying holdings. C-Corp funds accrue a deferred tax liability for the portion of distributions considered to be a tax-deferred return of capital and for gains in underlying holdings.
ETFtrends (cited above).
Aside from Fidelity Treasury Portfolio, I can't find any underlying funds in the portfolio.
I bit the bullet and bought into an MLP NOT in my IRA. I don't like waiting for the k-1, but the stock is worth the "hassle." The company lets you sign-in to access the k-1 before it comes in the mail. THIS year, the k-1 came atrociously late via the USPS.
Consider yourself lucky. The K-1 filing deadline is March 15th, but companies can request an automatically granted extension to Sept 15th. (Sept 16th this year; Sept 15th is a Sunday.)
Yes, but there is a downside to staying within the 25% MLP limit.
40 Act Funds – RIC Compliant – Less than 25% MLPs
Funds that own less than 25% MLPs do not pay taxes at the fund level, enabling them to pass through the entire return to their investors. The return of capital benefit from owning MLPs is muted due to the limit imposed on MLP ownership. Investors interested in RIC-compliant energy infrastructure funds should research what the fund owns for the other 75%. Common positions include midstream C-Corporations, utility companies, exploration and production companies, refiners, and MLP affiliates structured as C-Corporations.
I have some EPD an don't mind dealing with the K-1ut I am retired and have plenty of time to figure it out. As stated you can get it online usually a couple of weeks before 4/15
The tax consequences of selling it are complicated but you can figure them out.
Comments
In such cases, I'd definitely use an ETF .. there are several. Just check to make sure it's not levered, if you are trying to be conservative in your income holdings.
https://www.invesco.com/us/financial-products/mutual-funds/product-detail?audienceType=Investor&fundId=32052
https://connect.rightprospectus.com/Invesco/TADF/00143K277/P
https://www.taxpackagesupport.com/
MLPFX is of the latter type. Thus, like and individual investor in an MLP, it owes taxes on income generated by the MLP. The tax gimmick in MLPs is that their dividends are treated as returns of capital. So one does not owe taxes immediately on this income. MLPFX passes these ROCs through to its investors.
Ultimately the tax bill comes due. The return of capital reduces the cost basis of an MLP so that when it is sold, the gain is not based on the purchase price but on the purchase price minus the "tax-free" divs received. Since MLPFX is taxed as a corporation, it will owe those taxes.
"Upon a Fund’s sale of a portfolio security, the Fund will be liable for previously deferred taxes."
Prospectus
These deferred tax expenses are reported as expenses of the fund as they are accrued, i.e. at an estimated rate of 5.44% per year. That's the cost of creating a wrapper fund to convert MLP K1s into 1099s. ETFtrends (cited above).
Aside from Fidelity Treasury Portfolio, I can't find any underlying funds in the portfolio.
https://tax.thomsonreuters.com/blog/what-is-schedule-k-1
https://www.irs.gov/pub/irs-pdf/p509.pdf
The tax consequences of selling it are complicated but you can figure them out.
ET has done very well in the past year and heavily subscribed by their CEO. I stayed out of it cause of K-1.