It’s simple economics. Companies must adapt to shifting market conditions are risk being left behind or worse. This particularly in the energy sector where renewables continue pilfering market share and investors from fossil fuel producers.
However, some traditional energy companies see the writing on the wall and are changing with the times. That includes midstream names, including some residing in the Alerian Energy Infrastructure ETF (ENFR).
ENFR tracks the Alerian Midstream Energy Select Index (CME: AMEI). ENFR acts as a type of hybrid energy infrastructure ETF, which could help investors capture some of the high yields from MLPs but limits the tax hit from solely owning MLPs. Importantly, many midstream MLPs and energy infrastructure companies are working to deleverage their balance sheets.
“The dramatic growth of US oil and natural gas production over the last decade has transformed the US energy landscape by reducing our dependence on coal for electricity generation and exponentially increasing energy exports,” said Alerian analyst Bryce Bingham in a recent note. “Another transformation is underway as power providers and policymakers prioritize low-carbon energy in order to combat climate change. Some traditional oil and gas companies, including a handful of midstream companies, are responding to this shift by incorporating renewable energy into their businesses.”
Changing With The Times
Renewable energy, which includes solar, wind, geothermal, hydroelectric, and other low carbon sources, is commanding an increasing share of the energy landscape, meaning it’s not only prescient for midstream operators to move into the space, but potentially profitable, too.
“In the International Energy Agency’s (IEA) World Energy Outlook 2019, low-carbon sources, led by solar, are expected to account for more than half of global energy demand growth through 2040 under the Stated Policies Scenario, which incorporates stated government policy intentions and targets,” notes Bingham.
ENFR acts as a type of hybrid energy infrastructure ETF, which could help investors capture some of the high yields from MLPs but limits the tax hit from solely owning MLPs. Moreover, many traditional MLP funds don’t provide adequate renewables exposure, but ENFR is changing that conversation.
Consider this when it comes to the midstream’s foray into renewables: this is something integrated oil companies have been doing for years.
“The integrated majors — companies like BP, ExxonMobil (XOM), Shell (RDS.A) and Total (TOT) — have long been investing in alternative energy through renewable projects, research and development efforts, or backing startups developing new technologies,” writes Bingham.
Other energy infrastructure ideas include the VanEck Vectors Energy Income ETF (EINC) and the Global X MLP ETF (NYSEArca: MLPA).
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
