Midstream Energy Monthly Report | March

Midstream Energy ETF Monthly Report: Key Takeaways

• At the end of February, the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP), AEDW, was yielding 6.58%. At month end, AEDW was trading at 10.29x 2023 EBITDA estimates per Bloomberg – a discount to the historical (ten-year) average EV/EBITDA multiple for midstream of ~12x. [1]

• Heightened geopolitical risk contributed to rising oil prices in February, extending the strong outperformance of energy equities for the second straight month. On a net total-return basis, AEDW gained 4.07%, outperforming the Stoxx Europe 600 Oil and Gas Index (SXEP), which rose 1.26% on a total-return basis in February. West Texas Intermediate oil rallied 8.59% to end the month above $95 per barrel after surging above $100 intraday on news of Russia’s invasion of Ukraine. AEDW handily outperformed the S&P 500’s -2.99% total return in February, extending outperformance since the start of 2022. Year to date, AEDWN has delivered a net-total return of 14.60% while the S&P 500 has fallen 8.01% on a total-return basis. [2] 

• A 4Q21 earnings season characterized by dividend increases, buyback activity, and constructive guidance contributed to the strong momentum for midstream in February. The outlook for dividends remains positive, with eight AEDW constituents, representing 43.6% of the index by weighting, announcing sequential dividend increases. [3]

• Williams (WMB) [4]  reported 4Q21 EBTDA that topped estimates by over $50 million and held its Analyst Day where it highlighted the company’s financial flexibility to deliver sustainable dividend growth while capitalizing on natural gas and LNG growth opportunities. WMB guided to a 3.7% increase for its 2022 dividend.

• MPLX (MPLX) [5] announced strong 4Q21 results that included a $67 million EBITDA beat and $165 million deployed on share repurchases—an uptick relative to the $155 million spent on repurchases in 3Q21.   

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

A macro backdrop defined by inflationary pressures, heightened geopolitical risk, and rising commodity prices amid tight supply has contributed to increasingly positive sentiment for energy infrastructure companies, which has also been complemented by positive company developments. Dividend growth stems from the increased financial flexibility afforded by solid free cash flow generation, which is also supporting buyback activity in the space. With rising oil prices stoking inflation concerns, energy infrastructure companies remain well positioned for inflation not only by nature of their energy and real asset exposure but also because contracts typically have annual inflation adjustments. [6] The fee-based nature of midstream businesses limits the upside from rising commodity prices, but higher oil and natural gas prices are supportive for sentiment. Moreover, a sustained increase in commodity prices could support a greater production response from the US, which could drive incremental volumes for energy infrastructure companies over time. The current geopolitical situation could incentivize European liquefied natural gas (LNG) customers to sign up for long-term purchase agreements from US LNG facilities, some of which may still be under development and needing contracts to proceed with construction. This would in turn support more natural gas production volumes from the US, requiring more energy infrastructure or drive more volumes through existing assets, which would benefit midstream energy infrastructure.

Midstream Energy ETF Performance (As of 28.02.22)

Source: Bloomberg / HANetf. Data as of 28/02/2022. 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.

Learn more about our Midstream Energy ETF

Download the PDF