Midstream Energy ETF: Key Takeaways
• At the end of July, the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP), AEDW, was yielding 6.66%. AEDW was trading at 10.05x 2023 EBITDA estimates per Bloomberg – a discount to the historical (ten-year) average EV/EBITDA multiple for midstream of ~12x.
• Energy infrastructure companies rebounded in July as broader equity markets improved, US natural gas prices jumped, and a handful of companies announced positive results to start earnings season. [1]
• On a net total-return basis, AEDW gained 10.10% in July, handily outperforming the 4.93% total return for the Stoxx Europe 600 Oil and Gas Index (SXEP) and also outperforming the 9.53% total return for the Energy Select Sector Index (IXE). US benchmark natural gas prices increased 51.2% in July to notch their second-largest monthly gain on record as extreme heat increased natural gas demand for power generation. WTI oil prices fell -6.75% for the month. [2]
• Year-to-date through the end of July, AEDW is up 21.09% on a net total return basis, outperforming the 17.91% total return for the SXEP. Energy has remained a bright spot in a challenging market. [3]
• Dividend trends remain positive for energy infrastructure companies. In July, Energy Transfer (ET) announced a 15.0% increase to its distribution, and Enterprise Products Partners (EPD) announced a 2.2% increase to its distribution.[4] Both names were top five constituents of AMEI at the end of the month. Additionally, DCP Midstream (DCP) increased its distribution by 10.3%. There were no cuts among AMEI constituents. [5]
• Earnings season allowed companies to highlight their strong free cash flow generation and continued buyback activity. Kinder Morgan (KMI) reported 2Q22 results ahead of consensus estimates, raised 2022 EBITDA guidance by 5%, and stepped up buyback activity, having repurchased $275 million in shares year-to-date through July 21 after no buybacks in 2021.[6] Magellan Midstream Partners (MMP) reiterated 2022 guidance and completed $190 million in buybacks in 2Q22. [7]
Please note that all performance figures are showing net data. Past performance is not a guarantee of future performance.
Macro Outlook
Energy infrastructure equities rebounded in July as the focused shifted to 2Q22 dividend announcements and earnings results. For the fourth straight quarter, there were no dividend cuts among AEDW constituents. Most names maintained their payouts, though there were a few notable increases as discussed above. Earnings season continues into August, but initial results from midstream companies have been solid, supported by the strong macro backdrop during the quarter and continued operational execution.
We believe energy infrastructure companies have provided attractive income , while buybacks fuelled by significant free cash flow generation represent another tailwind. Though recession concerns may continue to weigh on oil prices and energy stocks, midstream provides more defensive energy exposure by nature of its fee-based business model and would be expected to hold up better in a recession relative to other subsectors of energy. [8]
MMLP Performance Table (As of 31.07.22)
|
|
1M
|
3M
|
6M
|
YTD
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12M
|
2Y
|
3Y
|
SI
|
|
Alerian Midstream Energy Dividend UCITS ETF
|
10.14%
|
2.48%
|
10.27%
|
21.50%
|
22.20%
|
79.04%
|
19.00%
|
83.44%
|
|
Alerian Midstream Energy Dividend Index (NTR)
|
10.10%
|
2.33%
|
9.97%
|
21.09%
|
21.49%
|
79.02%
|
18.65%
|
79.90%
|
Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/07/2022. Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. 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. When you invest in ETFs and ETCs, your capital is at risk.
Learn more about our midstream energy ETF.