AMZA Portfolio Manager Jay Hatfield interview

Jay Hatfield, of InfraCap, discusses his firm's specialty ETF, which focuses on midstream

master limited partnerships; he also discusses three of the ETF's largest current holdings.

Steven Halpern: Joining us today is Jay Hatfield, co-founder of InfraCap, which oversees the

InfraCap MLP exchange-traded fund which focuses on the midstream MLP market. How are

you doing today, Jay?

Jay Hatfield: I’m doing well, thank you.

Steven Halpern: Thank you for joining us. First off, could you briefly explain MLPs in general

and the midstream part of the MLP market in particular?

Jay Hatfield: Okay. MLPs are publicly traded partnerships that are specifically allowed by a tax

law that was passed in the late 1980s. Other types of corporations are not generally allowed to be

publically traded partnerships.

Since it is a publicly traded partnership, instead of having to pay corporate tax, the individual

investor gets a partnership return called a K1. The other thing that is interesting about publicly

traded partnerships is that, in many situations, there is a limited partnership that is publicly

traded—and then the general partner is also publicly traded—and those general partners have

attractive participation rights in the cash flow of the operating limited partnership.

Steven Halpern: And your focus is on the midstream aspect of this.

Jay Hatfield: Right. In our view, the midstream aspect of master limited partnerships is a very

attractive asset class to hold over long periods of time because rather than participate in some

commodity space business—which an upstream MLP would be or some other type of business—

Midstream MLPs—particularly the larger capitalization companies—have diversified operations

that participate in the liquids, natural gas, and gathering and processing segments of the

infrastructure industry.

Specifically, they normally have a substantial amount of their operations that are fee-based, or at

least asset-based, so they are relatively stable compared to other types of companies, particularly

E&P companies—or upstream MLPs—and generally more stable than just your average

corporation that might trade in the S&P 500. They are good, long-term, attractive, and relatively

stable investments.

Steven Halpern: MLPs often attract income investors. Could you explain the income potential

in this sector?

Jay Hatfield: Well, most partnership agreements provide for a substantial part of the defined

free cash flow to be paid out to investors in the form of partnership distributions. Actually,

because of accelerated depreciation, often times those distributions are not taxed currently but

only upon sale when the depreciation or when your lower basis gets taxed.