First Trust North American Energy Infrastructure Fund (EMLP)
The First Trust North American Energy Infrastructure Fund (ticker EMLP) holds a portfolio of master limited partnerships — specialized business structures that operate the pipelines, terminals, and storage facilities that move oil, natural gas, and refined products across North America.
What a master limited partnership is
A master limited partnership, or MLP, is a business structure unique to North America and particularly common in the energy sector. It works like a hybrid between a corporation and a partnership: the business operates like a company, but it is taxed like a partnership — meaning the partnership itself pays no tax, and instead the owners (called unit holders) pay tax on their share of the income.
This structure is powerful for businesses that generate large, stable cash flows but have little need for reinvestment. An MLP can distribute nearly all of its cash to unit holders, and those distributions are taxed only at the unit-holder level. If you own shares in a regular corporation, the corporation pays corporate income tax, and then when it pays you a dividend, you pay tax again — double taxation. An MLP avoids that second layer of tax, which means more cash flows through to the owner.
Energy infrastructure companies are ideal candidates for MLP status: a pipeline takes natural gas from a production field to a city; it charges a fee for every molecule that passes through; once built, the pipeline requires little additional capital investment; and the cash flow is very stable because people always need energy, regardless of the economic cycle.
What EMLP owns
EMLP holds units in dozens of MLPs, most focused on crude oil pipelines, natural gas pipelines, or storage and distribution terminals. The fund also includes some renewable energy infrastructure, though traditional fossil-fuel midstream remains the core.
A typical EMLP holding might be a limited partnership that operates a crude oil pipeline across several states. Oil producers put crude into the pipeline; the partnership collects a fee for moving it; it distributes that fee to its unit holders (now including EMLP shareholders) and keeps a small piece for operating costs and maintenance.
The largest MLPs tend to be household names in the energy world: companies like Enterprise Products Partners, Energy Transfer, and Williams Companies. These are massive businesses that operate thousands of miles of pipelines and storage facilities. EMLP holds units in many of the largest and most stable MLPs, though it also includes smaller, more specialized partnerships.
| Feature | Characteristic |
|---|---|
| Primary asset class | Midstream energy infrastructure (pipelines, terminals, storage) |
| Revenue model | Stable, long-term contracts with producers and consumers |
| Distribution yield | Typically 6–8 percent annually |
| Tax treatment | Pass-through; distributions are taxed as ordinary income |
| Capital intensity | Low reinvestment needed once infrastructure is built |
| Demand driver | Steady energy demand; contracts often inflation-adjusted |
Income and volatility
EMLP’s primary appeal is distribution income. Investors buy the fund primarily for the yield — currently in the 6–8 percent range — not for capital appreciation. Over the long term, energy demand should grow, pushing up the value of the underlying infrastructure, but the main reason to hold EMLP is the cash it pays out.
That said, EMLP is not a bond. The distributions can fluctuate. Energy infrastructure revenues depend partly on the volume of oil or gas flowing through the pipes, which can change with production levels, refinery activity, and seasonal demand. Distributions also depend on input costs — if labor, materials, or energy costs spike, partnership cash flow and distributions can suffer.
During the 2014–2016 period when oil prices crashed, energy MLPs suffered badly. Production fell, throughput declined, and many MLPs cut distributions. EMLP fell sharply. For investors who bought at the top expecting a steady 7 percent yield, the experience was brutal.
Tax complications
EMLP units (and therefore EMLP distributions) come with a tax complication that does not apply to regular equity dividends or bond interest. Distributions from MLPs are typically taxed as ordinary income, not as qualified dividends, which means they are taxed at your full marginal income-tax rate. If you are in the 37 percent federal tax bracket, a 7 percent MLP distribution is really only a 4.4 percent distribution after federal tax.
Worse, MLP distributions include return of capital, which means part of what you receive is not taxable immediately but instead reduces your cost basis. This makes MLP tax reporting complicated — EMLP will send you a K-1 form (like a 1099 but more complex) every year. In a tax-deferred account like an IRA, this complexity disappears, and EMLP becomes much simpler to own.
Currency and geography
The fund focuses on North American infrastructure: the United States and Canada. It does not have significant international energy-infrastructure exposure, so currency risk is minimal (though the fund can be affected by broader commodity-price movements that ripple across currencies).
The geographic focus is actually a strength: US and Canadian pipeline networks are mature, well-regulated, and operate under rule of law. A pipeline in the United States faces regulatory risk (the Federal Energy Regulatory Commission), but it does not face expropriation or political instability the way energy infrastructure in some other countries might.
Energy transition risk
The most significant long-term risk to EMLP is energy transition. As the world shifts away from fossil fuels toward renewable electricity, the demand for oil and natural gas pipelines will eventually decline. EMLP’s holdings operate pipelines and storage for oil and gas, not for renewable energy.
This does not mean EMLP is doomed tomorrow, but it does mean that long-term ownership is a bet that carbon-based energy will remain central to the economy for many more years, or that the energy infrastructure companies will successfully transition to renewable or hydrogen infrastructure. Some of the largest MLPs are making those transitions, but it is a fundamental uncertainty.
How to research EMLP
Start with the fund fact sheet, which lists the top holdings and shows the yield and the distribution frequency. Understand which companies dominate the fund and what infrastructure they operate. Read about recent earnings and distribution trends: are distributions growing, stable, or under pressure?
Monitor oil and natural gas prices and production levels. When energy prices are strong and production is high, MLP cash flows and distributions tend to improve. When energy prices are weak, distributions often suffer. Also track energy-policy changes: carbon pricing, pipeline permitting, and emissions regulations can all affect the long-term viability of fossil-fuel infrastructure.
EMLP is for income-focused investors willing to tolerate volatility and tax complexity in exchange for higher yield. It is not a conservative holding, and it is not a long-term, set-it-and-forget-it investment.