Midstream Energy Monthly Report | February

Midstream Energy ETF Monthly Report: Key Takeaways

• At the end of January, the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP), AEDW, was yielding 6.77% with investment-grade companies representing 84.56% of the index by weighting. At month end, AEDW was trading at 9.99x 2023 EBITDA estimates per Bloomberg – a discount to the historical (ten-year) average EV/EBITDA multiple for midstream of ~12x.[1]

• Rising commodity prices drove strong outperformance for energy equities in January. On a net total return basis, AEDW gained 10.11%, slightly outperforming the Stoxx Europe 600 Oil and Gas Index (SXEP), which rose 9.19% on a total-return basis in January. WTI oil rallied 17.21% to a seven-year high and its biggest monthly gain in a year. AEDW handily outperformed the S&P 500’s 5.26% decline in January—its worst month since March 2020—as concerns over rising interest rates continued to weigh on tech and growth-oriented equities.[2]

• Several key names announced dividend increases for their 4Q21 payouts (to be paid in 1Q22), including a 3.3% increase from Enterprise Products Partners (EPD)[3], a 3.7% increase from Williams (WMB)[4], and a 15% increase from Energy Transfer (ET)[5].

• Enbridge (ENB CN) agreed to collaborate with Lehigh Cement on a carbon capture project for Lehigh's manufacturing facility in Edmonton. As part of the proposal, ENB will seek regulatory approval to develop a carbon sequestration hub in Wabamun, Alberta.

• Quarterly earnings should provide additional insight to positive progress being made by companies. Kinder Morgan (KMI) [6] kicked off a solid start to 4Q21 earnings season with a slight beat, and at its Investor Day in late January, management highlighted the importance of natural gas infrastructure. 

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

Macro Outlook

Looking ahead to 2022, key themes from 2021 remain intact, namely free cash flow generation and the potential for buybacks as evidenced by the recent announcement of ENB’s buyback program and PPL’s 2022 capital allocation plan. As of December 31, 2021, roughly 69% of the AEDW Index by weighting had a buyback authorisation in place. [7] In addition to free cash flow generation, improving balance sheets, more normalised yields, and a relatively stable macro environment may support more widespread dividend increases in 2022. For the space broadly, dividend growth is likely to align with the low-to-mid single digit increases announced by KMI, TRP, and ENB. The improvement in commodity prices should support moderate growth in US oil and natural gas production in 2022, which should also bode well for midstream. [8] The space remains well positioned for inflation given real asset exposure and the nature of midstream contracts, which often have built-in inflation adjustments. Overall, a constructive macro environment and company-level tailwinds from solid free cash flow generation should be supportive for midstream in 2022, complimenting potential attractive income on offer. [9]

Midstream Energy ETF Performance (As of 31.01.22)

Source: Bloomberg / HANetf. Data as of 31/01/2022. 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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