- At the end of November, the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP), AEDW, was yielding 7.39% with investment-grade companies represented 84.32% of the index by weighting. At month end, AEDW was trading at 9.76x 2022 EBITDA estimates per Bloomberg – a discount to the historical (ten-year) average EV/EBITDA multiple for midstream of ~12x. [1]
- Concerns over the Omicron variant weighed on the energy sector in November and triggered a sharp selloff in commodity prices. However, midstream equities were largely resilient. On a net total return basis, AEDW fell 7.31%, outperforming the Stoxx Europe 600 Oil and Gas Index (SXEP), which was down 7.64% on a total-return basis in November. WTI oil fell 20.81% to its biggest monthly drop since the pandemic first rattled markets, while Henry Hub natural gas prices fell 15.84%. [2]
- Midstream 3Q21 earnings season wrapped up in November with numerous EBITDA beats accompanied by a ramp-up in buyback activity and multiple examples of dividend increases as free cash flow generation remained strong. Notably, AEDW constituents spent $721 million on buybacks in 3Q21 vs. $302 million spent in 2Q21. [3]
- MPLX (MPLX) spent $155 million on unit repurchases in 3Q21 and separately announced a 2.5% distribution increase and a special distribution of $0.5750 per common unit. [4] Magellan Midstream Partners (MMP) [5] and Western Midstream Partners (WES) [6] ramped up their buyback activity relative to 2Q21 and were among the other MLP index constituents that announced sequential distribution increases for 3Q21, while C-Corp Targa Resources (TRGP) [7] announced its plan to recommend a 250% increase in its quarterly dividend to $0.35 per share in 4Q21.
- Management teams provided largely constructive outlooks for 2022. ONEOK (OKE) [8] announced plans to restart natural gas and natural gas liquids projects that had been paused in the wake of the pandemic, citing increasing producer activity and improving demand. In addition, companies continued to make progress with ESG initiatives and opportunities related to the energy transition, with TC Energy’s (TRP CN) [9] recent partnership with Hyzon to co-develop hydrogen production hubs across North America providing another example.
Please note that all performance figures are showing net data.
Macro Outlook
Increased buyback activity and dividend increases reinforce the constructive outlook provided by midstream management teams on third quarter earnings calls, while adding to the total return potential of the space. With continued ESG progress and a fundamentally sound outlook, companies also remain well positioned for today’s inflationary environment given contracts with built-in inflation adjustments and the ability to pass higher costs on to customers. At the end of the month, the uncertainty introduced by the Omicron variant weighed on commodity prices, but midstream performance proved resilient despite the sharp sell-off in commodities.
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
Alerian Midstream Energy Dividend UCITS ETF
|
-7.21%
|
1.04%
|
-1.94%
|
33.10%
|
33.79%
|
48.71%
|
|
Alerian Midstream Energy Dividend Index (NTR)
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-7.31%
|
0.88%
|
-2.22%
|
32.00%
|
32.74%
|
46.27%
|
Source: Bloomberg / HANetf. Data as of 30/11/2021. Please note that all performance figures are showing net data.
Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data.
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