Investors that are bullish on the energy transition have the opportunity to buy in at a discount.
With both clean energy and traditional energy stocks trading below their recent highs but well positioned to rebound, now is an opportune time to add exposure to the energy transition portfolio by pairing investments in fossil fuels, such as crude oil and natural gas, with 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.
ACES is up over 1% by Friday morning but still down nearly 11% in the past month. Similarly, AMLP is up 0.5% Friday morning but has decreased 7.29% in the past month, exposing an opportunity to buy the dip for both funds.
Investments in U.S. midstream are favored 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.
- Natural gas demand is forecast to grow through 2030 with continued infrastructure build-out, according to ALPS.
Investments in renewable energy provide the opportunity to capitalize on the growing, lucrative 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.
U.S. midstream infrastructure will continue to be built to handle the increasing crude, natural gas, and NGL export demand over the next decade, while also acting as the transportation infrastructure for several 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.
Other clean energy ETFs to consider include the iShares Global Clean Energy ETF (ICLN) and the Invesco Solar ETF (TAN).
For more news, information, and strategy, visit the ETF Building Blocks Channel.
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