Funds that invest in master limited partnerships (MLPs) are getting more tax-friendly. These funds, whose MLPs typically own oil and natural gas pipelines and storage and processing facilities, provide investors with distributions in the 4%-to-6% range but generally trigger a big tax bill each year because of IRS rules governing MLPs. Some funds are reducing that tax burden to attract some of the record amounts of money flowing into MLP investments from income-hungry investors.

Attractive now: Global X MLP & Energy Infrastructure ETF (MLPX) is an exchange-traded fund, recently yielding 2.6%. It keeps less than 25% of its assets in MLPs, the threshold below which it gets more favorable tax treatment from the IRS, and the rest in utilities and oil companies. JPMorgan Alerian MLP Index ETN (AMJ), an exchange-traded note recently yielding 4.8%, avoids the tax complexities of MLPs. Rather than investing directly in MLPs, it provides investors with an unsecured debt obligation that requires JPMorgan Chase to pay to investors an amount equal to the returns on a major index that tracks MLPs.

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