Investors looking to fully capitalize on the energy transition should consider allocating to investments in fossil fuels, such as crude oil and natural gas, as well as investments in renewable energy sources, such as wind, solar, and fuel cells.
Investors can diversify their portfolios and maximize potential upside by investing in both the Alerian MLP ETF (AMLP) and the ALPS Clean Energy ETF (ACES), which offer complementary exposure to the energy transition.
Investors are attracted to U.S. midstream exposure 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, according to ALPS.
Investors are opting to add clean energy to their portfolios to capitalize on the growing industry. 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 infrastructure will continue to be built to handle the increasing crude and 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.
The blended strategy — an equal split between ACES and AMLP — may offer improved risk-adjusted returns with a yield of 4.62%, and represents an alternative to choosing between high yield in the midstream MLP sector and high growth in clean energy, according to ALPS.
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