The energy sector is the best-performing group in the S&P 500 this year, and although the group is increasingly home to stronger balance sheets and more prudent capital allocations, it’s still a credible income destination.

At least, it is if investors employ the right strategies. Those include the VanEck Vectors Energy Income ETF (EINC). EINC, which tracks the MVIS North America Energy Infrastructure Index, is up 25% year-to-date and sports a tempting dividend yield of 4.38%.

Alone, either of those statistics is alluring. For investors who missed out on energy’s recent rally, there might be some good news, as some analysts see potential for further upside in the sector. Importantly, that optimism isn’t solely attributable to Russia’s war against Ukraine.

“It’s not news that the war raging in Ukraine is threatening oil supplies from Russia, the second-largest global crude oil exporter, leading to higher prices. But this is just part of the story,” says Charles Schwab’s David Kastner. “The oil market was out of balance even before the Russian invasion of Ukraine, as cautious U.S. producers and the Organization of the Petroleum Exporting Countries (OPEC) failed to keep up with rebounding demand following the COVID-19 pandemic.”

A potential advantage of EINC going forward is that energy infrastructure companies and pipeline operators, also known as midstream energy — the assets residing in the VanEck exchange traded fund — are historically less volatile than exploration and production or oil services equities. That’s a point to consider because, amid geopolitical turmoil, volatility could make its way back into the oil market.

“Given the highly volatile geopolitical circumstances that are affecting supply, we think the potential outcomes vary widely and are too unpredictable to make any outsized bets on energy stocks. Therefore, we recommend keeping allocations to the Energy sector in line with its weight in the overall market—currently about 3.8% of the S&P 500® Index,” adds Kastner.

Speaking of volatility, EINC’s annualized volatility up to this point in 2022 is 940 basis points less than that of the S&P 500 Energy Index, confirming that the midstream can be a less bumpy avenue for investors seeking energy exposure.

Adding to the allure of EINC is the point that many midstream companies are firming balance sheets and prioritizing buybacks and payout growth, indicating that the fund could be a valid inflation-fighting idea. The ETF, which recently turned 10 years old, holds 30 stocks.

For more news, information, and strategy, visit the Beyond Basic Beta 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.