New Fund Added to the Model ETF Portfolio

The Model Exchange-Traded Fund (ETF) Portfolio continues to outperform its benchmark year to date.
The portfolio is up 8.3% as of September 30, 2010, compared to the benchmark which is up 3.9%. The performance for various periods can be seen in Table 1.

While the portfolio has performed quite well since the 2008–2009 bear market, it has not regained its pre-crash high. Real estate continues to improve but has not yet recovered as much as other equities.

New Addition

We have added a new ETF to the portfolio: ALPS Alerian MLP (AMLP). For the first time it is possible to invest in master limited partnerships (MLPs) through an exchange-traded fund. Investing in MLPs this way eliminates dealing with the complex K-1 tax forms that accompany direct MLP investments. Master limited partnerships generate significant income, which will be passed on by the ETF. Alerian feels that the ETF can be held in retirement plans without creating unrelated business income, which could be taxable. AMLP accomplishes this by being structured as a corporation for federal income tax purposes and must pay taxes on its taxable income. AMLP follows the Alerian MLP Infrastructure Index which invests in prominent MLPs that are primarily in oil and gas infrastructure—i.e., pipelines and storage. For the complete details of how master limited partnerships work, there is excellent coverage at Investopedia.com and the National Association of Publicly Traded Partnerships (www.naptp.org).

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