In volatile markets, investors seeking stability could potentially find steady returns through energy infrastructure. That’s because the free cash flow generated by midstream energy companies comes from long-term, fee-based contracts rather than short-term commodity price swings.
In the upcoming webcast, Steady As They Go: How Energy Infrastructure May Weather Volatile Markets, Paul Baiocchi, Chief ETF Strategist, SS&C ALPS Advisors; and Stacey Morris, Head of Energy Research, VettaFi, will highlight the benefits of the energy infrastructure sector and why financial advisors may consider turning to midstream strategies to help enhance their client portfolios.
For instance, the Alerian MLP ETF (AMLP) offers exposure to major midstream energy companies that provide robust cash flow and increasing payouts to shareholders and currently yields nearly 7.25%. The fund seeks to track the Alerian MLP Infrastructure Index, a rules-based index that is float-adjusted and modified cap-weighted.
The underlying index comprises energy infrastructure MLPs that derive most of their cash flow from the storage, transportation, and processing of energy commodities. AMLP invests at least 90% of its assets into the securities within the underlying index and is classified as a C-Corp for tax purposes, utilizing 1099 for tax reporting.
Additionally, the Alerian Energy Infrastructure ETF (ENFR) tries to reflect the performance of the Alerian Midstream Energy Select Index, an index that includes a mix of North American midstream corporations and MLPs involved in the storage, pipeline transportation, and processing of energy commodities.
ENFR invests at least 90% of its assets in securities within the index, and it also cannot invest more than 25% of its assets into the securities of one or more publicly-traded partnerships, including MLPs, per tax code.
“Energy has remained a bright spot in a challenging market as investors grapple with rising interest rates in the fight against inflation. Looking ahead, midstream remains well positioned for today’s inflationary environment, given real asset exposure and inflation adjustments typically built into contracts. The space is poised to generate significant free cash flow, which can be used for distribution increases and buybacks. Excess cash flow can also be used for funding selective growth opportunities. Current commodity prices should continue to incentivize moderate growth from US producers, resulting in incremental volumes for midstream MLPs to transport and process,” according to ALPS Funds.
vettafi.com is owned by VettaFi, which also owns the index provider for AMLP and ENFR. VettaFi is not the sponsor of AMLP or ENFR, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.
Financial advisors interested in learning more about the energy infrastructure sector can register for the Thursday, September 15 webcast here.