September 3, 2016 Comments (0) Current Investigations

Morgan Stanley Cushing MLP High Income Index: Enormous Risks

(Last Updated On: October 10, 2016)

Have you suffered losses investing in Morgan Stanley Cushing MLP High Income Exchange-Traded Notes
(MLPY)?   If so, the securities attorneys of The White Law Group may be able to help you recover your losses in a FINRA arbitration claim against the brokerage firm that recommended the investment.

The Morgan Stanley Cushing MLP High Income Index ETN is an exchange-traded note issued by Morgan Stanley.  The ETN due 3/21/2031 are senior, unsecured debt securities issued by Morgan Stanley and is part of the Series F, Global Medium-Term Notes program.  The Notes aim to provide investors with a cash payment at the scheduled maturity or early repurchase and variable coupon payments each quarter, in each case based on the performance of the underlying index, the Cushing MLP High Income Index.

The Cushing MLP High Income Index is a criteria-weighted index tracking the performance of 30 Master Limited Partnerships (MLPs) that hold energy infrastructure and related shipping assets in North America.  An MLP is a limited partnership which trades publicly on an exchange and thus, provides not only the tax benefits of a limited partnership, but also the liquidity of publicly traded securities.  Examples of energy MLPs include Legacy Reserves LP, Hi-Crush Partners LP, Foresight Energy LP, Emerge Energy LP, and Enable Midstream Partners.

Unfortunately for investors in the Morgan Stanley Cushing MLP High Income Index ETN, crude oil prices have crashed over the last two years, bringing the Energy Sector and energy MLPs down with it (many energy MLPs are down more than 80%.   Trading recently at $7.88/share, MLPY was trading for $19.27 as recently as October 2014.

The following are the holdings of MLPY from the Cushing website as of August 2016:

Sunoco LP 3.57%
Williams Partners LP 5.23%
Enbridge Energy Partners LP 5.03%
NuStar Energy LP 4.83%
Energy Transfer Partners LP 3.94%
Ferrellgas Partners LP 5.16%
Plains All American Pipeline LP 4.03%
Suburban Propane Partners LP 4.79%
Summit Midstream Partners LP 5.50%
EnLink Midstream Partners LP 5.08%
Plains GP Holdings LP 3.76%
Energy Transfer Equity LP 3.65%
Golar LNG Partners LP 3.69%
AmeriGas Partners LP 3.28%
Buckeye Partners LP 3.45%
Sunoco Logistics Partners LP 3.49%
DCP Midstream Partners LP 3.29%
ONEOK Partners LP 3.24%
Martin Midstream Partners LP 2.85%
Genesis Energy LP 3.13%
TC Pipelines LP 1.49%
Tallgrass Energy Partners LP 1.54%
Holly Energy Partners LP 1.38%
Tesoro Logistics LP 1.49%
SunCoke Energy Partners LP 1.38%
Western Gas Partners LP 1.47%
MPLX LP 1.48%
Enlink Midstream LLC 1.54%
Transocean Partners LLC 1.33%
USA Compression Partners 1.61%

The White Law Group continues to investigate the liability that brokerage firms may have for improperly recommending the Morgan Stanley Cushing MLP High Income Index ETN to their clients.

Brokerage firms are required to perform adequate due diligence on the investments they recommend to ensure a reasonable likelihood of success, and to evaluate whether the investments are suitable in light of the client’s age, net worth, investment experience, and investment objectives.  Firms that fail to perform adequate due diligence, or that make unsuitable recommendations, can be held responsible for losses in a FINRA arbitration claim.

Based on the Prospectus, it appears that financial advisors who sold the Morgan Stanley Cushing MLP High Income Index ETN would have touted the investment’s income and growth potential.  Here is what is said by Morgan Stanley in the Prospectus:

– The ETNs provide investors with access to long exposure to the Index which tracks a criteria-weighted portfolio of MLPs via the Index. The price of the ETNs is generally expected to increase if the value of these MLPs increases; conversely, the price of the ETNs is generally expected to decrease if the value of these MLPs decreases.

– The ETNs may be suitable for investors who believe that, as a whole, the MLPs that are components of the Index will make distributions and increase in value while such investors hold the ETNs.

Unfortunately, some advisors may have glossed over or omitted entirely the enormous risks of the Morgan Stanley Cushing MLP High Income Index ETN.  Here is a summary of the risks discussed in those same offering materials:

– You could lose a substantial portion or even all of your investment since the Final VWAP Level may be less than the VWAP Level on the Maturity Date, Repurchase Date or Call Settlement Date, or at other times during the term of the ETNs.

–  Even if the Final VWAP Level is greater than the Initial VWAP Level, you may receive less than the Stated Principal Amount of your ETNs due to the negative effect of the Accrued Tracking Fee and/or the Repurchase Fee Amount of up to 0.125% of the Current Indicative Value as of the Index Business Day immediately preceding the applicable Repurchase Valuation Date.

Overall, that is a lot of risk for any investor, but particularly unsophisticated investors, to take on in order to seek income and growth in a low yield environment. For more on The White Law Group’s investigation involving Morgan Stanley Cushing MLP High Income Index ETN, visit here. Or see Investor Alert: Morgan Stanley Cushing MLP High Income Index ETN Securities Investigation to learn more about ETNs.

If you suffered losses investing in Morgan Stanley Cushing MLP High Income Index ETN and would like a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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