Tailored Investment Advice
We seek to deliver a plan or strategy which provides the benefits and investment profile you seek. We evaluate your financial situation and develop a strategy to fit your means and objectives.
For individual investors, we generally meet with you to understand your financial profile. We review your age, income, assets, special needs and discuss your investment objectives and risk tolerances. We then create a policy statement within our Investment Advisory Contract which we both sign.
For institutional investors we try to understand the objectives of your investment firm. For Registered Investment Advisors, we create sub advisory or models for you to provide to your clients. For hedge funds, foundations and pensions we develop strategies to leverage our skill set and provide strategies which your firm can implement.
We offer a range of strategies to leverage the unique investment profile of MLPs. MLPs offer four unique characteristics: high yields, high distribution growth, tax advantaged distributions and stable businesses.
Most Midstream MLPs offer attractive growing distributions and are natural monopolies regulated by the Federal Energy Regulatory Commission. We believe MLPs are outstanding retirement income vehicles due to their attractive tax advantaged yields, high distribution growth, and stable business models. MLPs have consistently delivered outstanding returns.
Our typical MLP account has a buy and hold objective and invests in 3-5 MLPs for account or portfolio between $100,000 to $250,000. We believe that the long term benefit of owning MLPs is in the distribution growth prospects and the future tax advantaged income stream to be provided by a typical MLP or MLP portfolio. Because MLPs generate K-1s we tend to have “concentrated” portfolios with 3-5 holdings to keep the tax administrative simple.
Larger accounts such as $5,000,000 might have 10-20 holdings. Our objective is to outperform the benchmark index so we try to hold the most attractive MLPs out of the 100 or so MLP universe. Our objective is a buy and hold strategy as we like to own those MLPs whose distribution growth will provide the greatest future tax advantaged income stream for our clients. While some managers may want to trade MLPs, this approach undermines the tax advantaged benefit of MLPs and could hurt a client’s after tax total return, though a trading approach may provide a bump in performance.
Tax Implications and Retirement Plan Strategies:
MLPs are tax advantaged and they do not pay corporate taxes. This tax status means the income accrued by the MLP is distributed as a return of capital to the MLP limited partner (shareholder.)
MLPs are prohibited from being owned by mutual funds or retirement plans. If they are, the mutual fund or retirement plan could be subject to federal taxation on the UBTI accrued by the MLP. When those taxes are paid, the fund’s performance can see a drop in performance on the order of 30%. This is why we advocate owning MLPs directly and not funds. Consequently, for retirement plans, we can provide a list of closed end funds (CEFs), ETFs or mutual funds which will pay those federal taxes, and therefore are not subject to the UBTI taxation. We can create a strategy using where we buy MLP CEFs at a discount to NAV to enhance performance and provide attractive income without tax complications that can result from owning MLPs in retirement plans.
While most MLP LP units generate K-1s, some generate 1099s because they file as C-Corps. Many MLP sponsors (GPs) are publicly traded C-Corps. These GPs are not subject to the tax restrictions of K-1 filing MLPs. Since the sponsors or parents indirectly benefit from the tax benefits of the MLP structure through effective asset utilization and tax optimization, we can create a portfolio of MLP GPs, sponsors or C-Corps benefitting from the preferential tax treatment of the MLP tax law.
Concentrated Stock Position Strategies:
Corporate executives are often faced with the dilemma of having an overly concentrated stock position among their assets. Jeff Bezos, Bill Gates, Steve Jobs, and Mark Zuckerberg have made vast fortunes owning large positions in their company stock; however, not every concentrated stock holder benefits from having most of their net worth tied to the fate of a single stock. Consider the executives and employees of Enron or WorldCom who watched their once stellar corporate holding collapse leaving those individuals with a huge change in their financial circumstances.
The combination of Corporate Executive Services, option trading and the industry leading low cost margin rates through Interactive Brokers make IGA uniquely positioned to provide hedging strategies to individuals with concentrated stock positions. Further, because of our experience in investing in MLPs, we can offer one of the most attractive and competitively priced solutions to executives looking to diversify their holdings, increase their income, defer taxes and reduce their downside risk from their concentrated positions.
We offer MLP strategies to Registered Investment Advisors and money managers. We use quantitative models to offer a range of investment strategies. These include aggressive or conservative equity models or exchange traded fund “ETF” asset allocation models.