The Investment Case for the Energy Transition Portfolio | ETF Trends

The energy transition portfolio is an attractive investment opportunity as it capitalizes on both sides of the transition.

As traditional energy sources and infrastructure are poised to continue to play a role in the energy transition in the coming decades, investors can maximize their exposure with the energy transition portfolio, comprising the Alerian MLP ETF (AMLP) and the ALPS Clean Energy ETF (ACES).

Clean energy is a ripe investment theme as valuations are still depressed but growth opportunities are strong. Geopolitical risks and elevated fuel costs will continue to accelerate clean energy spending and adoption into 2023 and over the next few decades, where the global opportunity to capture the estimated $194 trillion investment effort to reach Net-Zero by 2050 goals is just beginning, according to SS&C ALPS Advisors.

“Public, corporate and consumer spending towards clean energy will be driven by massive tax credits and subsidies across the G20 nations, including further credits set to kick in during 2023 from the US Inflation Reduction Act (IRA) passed in 2022,” ALPS wrote in February. “Since the IRA bill passed, nearly $28 billion in new EV infrastructure investment has been announced in the US, with the announced policy support raising estimates of US grid investment alone to $801 billion by 2030. The IRA has helped to fuel M&A across the EV space as well as in the US biofuel industry, with fossil-fuel buyers flush with free-cash-flow looking to reposition their businesses toward more clean technologies and ESG attributes.”

Midstream is an attractive investment for several reasons: The U.S. is the world’s largest producer of oil and natural gas with significant reserves; natural gas prices, along with natural gas liquids (NGLs), have significantly recovered this year amid improving demand; and natural gas demand is forecast to grow through 2030 with continued infrastructure build-out.

An investment in clean energy offers exposure to a high-growth industry, which will continue to gain market share. Global superpowers have unveiled aggressive carbon-neutral goals and clean energy policies with massive fiscal stimulus measures, clean energy technology costs continue to plummet as global adoption increases, and renewables continue to gain market share for power generation, according to ALPS.

U.S. midstream companies will remain a valuable part of energy production, as they are uniquely equipped to handle the increasing crude, natural gas, and NGL export demand over the next decade, while also acting as the transportation infrastructure to a number of renewable fuels, such as hydrogen for fuel cells, renewable diesel, and ethanol.

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