The energy selloff has been a key theme in markets this week as investors dumped more volatile assets.
The energy selloff was fueled by concerns about the global economy, a stronger dollar, and risk-off sentiment among markets. U.S. benchmark oil prices fell 5.2% to $67.61 per barrel on Wednesday – levels not seen since December 2021.
Midstream, however, is holding up better than other energy subsectors – something that shouldn’t come as a surprise. Midstream is less sensitive to moves in commodity prices given its fee-based business model, which supports stable cash flows, according to Stacey Morris, head of energy research at VettaFi.
While the recent negative performance has reflected global economic concerns, weakening sentiment, and a risk-off environment, nothing has changed for midstream fundamentals over the past week from a business or operational standpoint.
“Investors concerned about commodity prices should consider shifting their energy exposure towards energy infrastructure given its defensive qualities,” Morris said. “The generous income from the space can be particularly attractive in periods of market volatility.”
Two well-known energy infrastructure ETFs, the Alerian MLP ETF (AMLP) and the Alerian Energy Infrastructure ETF (ENFR), provide an attractive income opportunity.
AMLP’s underlying index, the Alerian MLP Infrastructure Index (AMZI), is currently yielding 7.99% compared to the 7.72% 10-year average. Meanwhile, the Alerian Midstream Energy Select Index (AMEI), tracked by ENFR, has a current yield of 6.91% compared to the 5.65% 10-year average.
“I remain very confident in the positive trends for midstream/MLP dividends driven by ongoing free cash flow generation,” Morris said. “Importantly, MLPs and midstream have held up better than broad energy benchmarks and other energy subsectors over the last week given midstream’s defensive qualities.”
In the upcoming webcast on March 22, Midstream/MLPs: Can the Strong Fundamentals Persist?, SS&C ALPS Advisors and VettaFi will discuss the current energy landscape, the defensive nature of midstream, and the constructive outlook for dividends from this space.
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