Does Your Portfolio Need Energy Sector Exposure? | ETF Trends

Energy was the top-performing sector of the S&P 500 in 2021 as economies worked to reopen and recover during the COVID pandemic, reported Oilprice.com. The demand for oil increased as a direct response to economic recovery, and despite recent pullbacks in the sector, it remains a top performer for the year and a good buy for investors going into next year.

Analysts are anticipating energy demand to continue to grow in 2022 and with some energy stocks currently at low valuations, the opportunity for high yields could make investing in energy even more enticing going forward. Despite Omicron fears and the unknown impact, analysts are currently not expecting lockdowns on the global scale that was seen last year at the onset of the pandemic.

As of December 13, Yardeni Research reports that the energy sector was up 46.3%, a twofold increase over the gains of the S&P 500.

“For the U.S. to bring supply back up to levels that we saw pre-pandemic, it’s going to take to July of 2023. So I think there’s going to continue to be upward pressure on the price of oil, and I think there are still ways for you to make money in this sector,” said Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, told CNBC’s Trading Nation.

Economic recovery equates to greater demand for the energy sector as a whole, and within oil specifically, prices are expected to continue to rise with OPEC having limited capabilities in increasing production.

Energy Infrastructure Benefits From Sector Performance

For investors looking to capture the growth anticipated for the energy infrastructure industry going into next year, the Alerian Energy Infrastructure ETF (ENFR) is an excellent option.

The fund seeks to track the Alerian Midstream Energy Select Index, an index that includes a mix of North American midstream energy infrastructure companies, including MLPs and corporations that are involved in storage, pipeline transportation, and the processing of energy commodities.

ENFR invests at least 90% of its assets in securities within the index, and cannot invest more than 25% of its assets into the securities of one or more publicly-traded partnerships, including MLPs, per tax code.

Shareholders are not considered to be engaged in the business that MLPs conduct in regards to federal and state tax purposes, and because investments are being put into the fund and not directly into an MLP, income and losses by the fund into MLPs will not pass through to the tax returns of shareholders.

The sector breakdown of ENFR includes a 32.85% allocation to gathering and processing, a 31.02% allocation to pipeline transportation of natural gas, a 26.48% allocation to pipeline transportation of petroleum, 7.12% to liquefaction, and 2.28% to storage, as of December 14.

ENFR carries an expense ratio of 0.35%.

For more news, information, and strategy, visit the Energy Infrastructure Channel.