Midstream Energy ETF
- Rising commodity prices supported the continued outperformance of energy equities despite heightened volatility from the ongoing Russia-Ukraine conflict.
- On a net total-return basis, AEDW gained 5.86%, outperforming the Stoxx Europe 600 Oil and Gas Index (SXEP), which rose 4.51% on a net total-return basis in March. WTI oil prices saw sharp swings during the month but finished 4.76% higher to end 1Q22 with a 34% gain, marking its best quarter since March 2020. Natural gas prices at Henry Hub soared by 28% in March to notch a 51.26% gain for the quarter. AEDW, the underlying index of our midstream energy ETF, outperformed the S&P 500’s 3.71% total return in March, extending outperformance since the start of 2022 as concerns over rising rates, inflation, and the war in Ukraine weighed heavily on broad market indices in 1Q22. Year to date, AEDWN has delivered a net-total return of 21.31% while the S&P 500 has fallen 4.60% on a total-return basis. [1]
- At the end of March, the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP), AEDW, was yielding 6.19%. AEDW was trading at 10.55x 2023 EBITDA estimates per Bloomberg – a discount to the historical (ten-year) average EV/EBITDA multiple for midstream of ~12x. [2]
- In 4Q21, energy infrastructure companies, led by MLPs, repurchased $650 million of their equity in aggregate, including $165 million in buybacks from MPLX (MPLX) [3] and $125 million from Enterprise Products Partners (EPD) [4]. As of March 31, approximately 70% of AEDW constituents by weighting had a buyback authorization in place. [5]
- Pembina Pipeline Corporation (PPL CN) entered a joint venture with KKR to merge their Western Canadian natural gas processing assets into a single entity. PPL will be the asset operator and own a 60% interest. PPL expects ~$700 million of cash proceeds from the deal, of which $550 million will be allocated to debt repayment and $150 million towards buybacks. PPL also plans to increase its monthly common dividend by 3.6% or $0.0075 per share upon the deal closing. [6]
- Energy Transfer (ET) agreed to sell its 51% interest in Energy Transfer Canada to the joint venture formed by PPL and KKR and expects to receive cash proceeds of $270 million. The divestment allows ET to reduce leverage and redirect capital to its US infrastructure network. [7]
- Williams (WMB) announced a $950 million acquisition of gathering and processing assets in the Haynesville from Trace Midstream, which will increase WMB’s footprint in East Texas and support its clean energy initiatives, including gathering responsibly sourced natural gas and serving the growing LNG markets in the Gulf Coast. [8]
Macro Outlook
We observed that energy infrastructure companies continued to benefit from strengthening energy sentiment as oil and gas prices extended their surge in March. While the rally in commodity prices has been accompanied by sharp price swings and increased uncertainty following recent geopolitical events, energy infrastructure companies are better insulated from a volatile commodity price environment due to fee-based businesses that generate steady cash flows. Dividend growth has become more prevalent across the energy infrastructure space as companies prioritize returning more capital to shareholders. Though yields have come down with stronger equity performance, the energy infrastructure space continues to offer yields well above other income-oriented sectors. Dividend growth is being complemented by buybacks. Looking ahead, with the outlook for significant free cash flow intact, the financial flexibility to return more capital to shareholders complements macro tailwinds that are fuelling the strong outperformance for energy infrastructure companies.
MMLP Performance Table (As of 31.03.22)
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1M
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3M
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6M
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YTD
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12M
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2Y
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3Y
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SI
|
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Alerian Midstream Energy Dividend UCITS ETF
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5.74%
|
19.69%
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19.61%
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19.69%
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33.52%
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141.77%
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19.34%
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80.72%
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Alerian Midstream Energy Dividend Index (NTR)
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5.86%
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21.31%
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21.07%
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21.31%
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34.63%
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141.11%
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19.01%
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80.23%
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ETF performance figures are on a net-total-return basis. Source: Bloomberg / HANetf. Data as of 31/03/2022Past 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.
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