Midstream ETFs have generated attractive returns for investors but remain a compelling investment opportunity in the current environment.
Midstream has been the top-performing segment in the energy sector year to date, strengthened by its defensive qualities, M&A activity, and positive dividend announcements. Despite its recent outperformance, the midstream space remains attractive from a valuation perspective.
Midstream ETFs Alerian MLP ETF (AMLP) and Alerian Energy Infrastructure ETF (ENFR) have handily outpaced broader energy, measured by the Energy Select Sector SPDR Fund (XLE), in 2023 to date. AMLP and ENFR are up 22.05% and 14.12%, respectively, while XLE is down 3.85%, each on a total return basis, as of December 6.
See more: “Try This Instead of Investing in a Broad Energy ETF”
Notably, the indexes underpinning AMLP and ENFR are trading with forward EV/EBITDA multiples at or below their three-year averages.
AMLP’s underlying index, the Alerian MLP Infrastructure Index (AMZI), ended November with a forward EV/EBITDA multiple of 8.86x. This figure is roughly in line with its three-year average of 8.83x.
Meanwhile, ENFR’s underlying index, the Alerian Midstream Energy Select Index (AMEI), was trading at a forward EV/EBITDA multiple of 9.59x at the end of November. This represents a discount to its three-year average ratio of 9.79x.
Midstream ETFs Offer Generous Yields
The midstream space/ MLPs are currently providing more generous yields than other segments of the energy sector. Distributions can be particularly attractive during periods of market volatility.
Midstream ETFs AMLP and ENFR have track records of producing generous income for investors. AMZI is currently yielding 7.7%, below its three-year average yield of 7.8%. At the same time, AMEI is yielding 6.2%, in line with its three-year average of 6.20%.
See more: “Midstream/MLPs Raising the Bar With Lower Leverage”
For more news, information, and analysis, visit the Energy Infrastructure Channel.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP and ENFR, for which it receives an index licensing fee. However, AMLP and ENFR are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP and ENFR.