AMLP’s Hidden Tax Trap: Why This Popular MLP ETF Underperformed by 115% Over a Decade

If you own the Alerian MLP ETF (NYSEARCA:AMLP), you are paying both a fund manager and a corporate tax bill that the marketing materials rarely draw attention to. AMLP is structured as a C-corporation, which means the fund itself pays federal and state income tax on the gains inside your portfolio before you ever see them.

What You Are Actually Paying

Start with the sticker fee. AMLP carries a 0.85% expense ratio, or about $85 per year on every $10,000 invested. Some third-party trackers cite an all-in figure closer to 1.01% once operating costs are folded in. Either way, it is expensive for what is essentially a rules-based basket of midstream pipeline partnerships.

Now layer on the part almost nobody quantifies for you: the corporate tax. Because AMLP is a C-corp, it pays corporate tax itself, creating a large permanent tracking lag versus its own index. When the underlying MLPs rally, AMLP accrues a deferred tax liability on those unrealized gains. That liability comes straight off the fund’s net asset value. The index does not pay taxes. You do, twice: once inside the wrapper, and again when you sell.

The receipts are in the returns. Over the past year, AMLP is up 19.37%. A close peer, the Global X MLP & Energy Infrastructure ETF (NYSEARCA:MLPX), returned 26.07%. The Alerian Energy Infrastructure ETF (NYSEARCA:ENFR) returned 29.21%. Same sector. Same pipes. Very different net outcomes.

The Part the Factsheet Does Not Highlight

Zoom out and the gap widens. Over the past five years, AMLP returned 141.5%. MLPX returned 177.88% and ENFR returned 167.88%.

Over ten years, the split is brutal: AMLP 96.8% versus MLPX at 211.87% and ENFR at 207.57%. On $10,000 invested a decade ago, that is a difference measured in five figures, not basis points.

There is a second cost hiding in the concentration as well. The top six positions, Plains All American, Sunoco, Western Midstream, Energy Transfer, Enterprise Products, and MPLX, make up roughly 75% of net assets. Energy Transfer alone is 13.34% and Plains is 13.67%. This is a levered bet on just a handful of names, wrapped in a taxable corporate shell.

The dividend also masks the drag. AMLP paid $4.02 in trailing distributions with a forward estimate of $4.12. MLP distributions typically include a large return-of-capital slice, which lowers your cost basis rather than being “free” yield. When you finally sell, the deferred tax comes due, on top of the corporate tax the fund already paid.

The Cheaper Mirror

MLPX and ENFR are the two closest analogs. Both are structured as regulated investment companies rather than C-corps, so the fund itself does not pay corporate tax. The trade-off is exposure: to keep RIC status, they cap direct MLP holdings at 25% and fill the rest with midstream C-corps like Enbridge, TC Energy, Kinder Morgan, and Williams Companies. You get slightly less pure MLP yield. You keep vastly more of the compounding, as the ten-year numbers show. You also give up the K-1 headache, because both peers issue a standard 1099.

What This Means for You

The 7% to 8% yield AMLP advertises comes with a catch: the fund quietly hands part of your compounding to the IRS before the distribution ever lands in your account. Before allocating your capital, the question worth asking is simple. Do you actually need direct MLP exposure inside a taxable wrapper, or would a RIC-structured peer deliver the same pipes without the built-in corporate tax lag?

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