Investor Alert – JPMorgan Alerian MLP Index ETN


Heads up to Investors in the JPMorgan Alerian MLP Index ETN (Symbol: AMJ). JPMorgan has ceased issuing new shares of the master limited partnership exchange-traded note. The ETN posted a note on its web page explaining that it stopped issuing new share because the maximum number of shares allowed had been reached (“Red flag at popular ETN,” by Jason Kephart, InvestmentNews).

This means that the ETN is now likely to trade at a premium or a discount to the net asset value of the underlying assets. According to the article, the share price is likely to rise to a premium above net asset value, because of the demand for the hefty dividends of master limited partnerships. On the other hand, if the master limited partnership sector sells off, the ETN’s share will probably trade at a discount.

One potential danger that investors need to watch out for is that JP Morgan might resume issuing shares after a spike in the share price, which could lead to a collapse of the share price down to the net asset value or lower.

That is what happened earlier this year to investors in the Credit Suisse VelocityShares Daily 2X VIX Short-Term ETN (Symbol: TVIX). Credit Suisse stopped issuing new shares in February after which the shares doubled in value. When Credit Suisse resumed issuing shares in March, however, the ETN’s share price took a nose dive that wiped out $172 million in one day.

Various regulators have said they are looking into sales practices involving ETNs.

Exchange traded funds, particularly those in the master limited partnership sector, can also have problems in tracking their underlying assets. For example, the ALPS Alerian MLP ETF (Symbol: AMLP) had a tracking error of almost 7 percent in 2011 – more than any other ETF, according to the article.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.