The Alerian MLP Infrastructure Index (AMZI) hit a key milestone earlier this week, reaching the highest level on a price appreciation basis since September 2019.
AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). The index is a capped, float-adjusted, cap-weighted composite of energy infrastructure MLPs. Included MLPs earn most of their cash flow from midstream activities.
AMZI has continued to climb higher year to date despite volatility in crude oil prices. With crude oil currently trading at about $94 per barrel, AMZI is now trading at a higher price than it was in June 2022, when crude oil prices reached a relative high, peaking at $122 per barrel.
See more: “Energy Rallies With Oil – Is More in the Tank?”
AMZI is composed of MLPs, which are less sensitive to moves in commodity prices given their fee-based business models. MLPs’ defensiveness has been a helpful attribute this year as oil prices have been turbulent.
MLPs can benefit from improved sentiment as oil prices increase. However, MLPs have historically tended to hold up better than other energy sectors if oil prices decline. This resiliency was demonstrated earlier in 2023 and has contributed to MLPs’ year-to-date outperformance over broad energy.
MLPs have a strong record of generating attractive income for investors. AMZI is yielding 7.6% as of September 25.
Recovered, But Not Expensive
Even as AMZI has recovered to pre-pandemic levels and reached a four-year high, the midstream space is still not expensive.
AMZI was trading at a weighted average forward EV/EBITDA multiple of 8.8x per Bloomberg consensus estimates as of September 25. The current multiple is in line with the three-year average forward EV/EBITDA multiple for the index.
Oil prices may continue to increase as the recent extension of cuts to oil production by Saudi Arabia and Russia is expected to lock in a substantial market deficit through the rest of 2023.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
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