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Midstream Energy Monthly Report | December

 

  • The Alerian Midstream Energy Dividend Index (AEDW) jumped 19.36% during November on a net total return basis as vaccine progress supported oil prices and energy equities.[1]  
  • Even with November’s gains, the current yield for the underlying index for The Alerian Midstream Energy Dividend UCITS ETF (MMLP), our midstream energy ETF, is 9.57% or almost 200 basis points above its five-year average.[2]
  • The strong midstream performance in November on the heels of vaccine developments exemplified the potential upside for the sector.

 

Performance Review 

  • November: AEDW 19.36%
  • WTI oil prices increased 26.68% in November but are still down 25.75% YTD through 30 November.

 

Yield

The current yield for AEDW is 9.57% (as of 30.11.2020), which is elevated relative to the five-year average of 7.63%. 

 

Alerian Midstream Energy Dividend Index Performance

November*

12 Month**

19.36%

-20.18%

Past performance is no guarantee of future performance.

Source: Alerian Based on net total return. * November figures based on 30.10.20 – 30.11.20 ** 12-month figures based on 29.11.19 – 30.11.20

 

Dividend Yield



November

AEDW

9.57%

Current performance is no guarantee of future performance Index yield annualizes the most recent dividend announcement for each constituent and takes into account current index weightings.

November figure based on 30.11.20 Source: Alerian

 

What has driven this performance?

Energy, including midstream, rallied in November on the heels of positive vaccine developments, which supported gains in oil prices. The month’s performance exemplified the upside potential for energy if a successful vaccine can help boost an oil demand recovery.

The fee-based nature of midstream and stable cash flows continue to differentiate midstream from the rest of energy. The AEDW Index is down -26.81% on a net total return basis YTD through 30 November, but 2020 and 2021 EBITDA estimates for the index have fallen by only -4.2% and -9.3%, respectively, from January 31 (pre-COVID) to the end of November. As of 30 November, 84.0% of AEDW was investment-grade companies by weighting, and the index was trading at 9.5x consensus 2021 EBITDA estimates compared to a historical (ten-year) EV/EBITDA average multiple for midstream of ~12x.

While the broader energy sector, represented by the Energy Select Sector Index (IXETR), outperformed the underlying index for our midstream energy ETF during November, AEDW has outperformed IXETR by nearly 900 basis points year-to-date on a total-return basis.

Current/past performance is no guarantee of future performance.

Source of all data: Alerian, Bloomberg

 

Alerian Midstream Energy Dividend Index (NTR) and MLP ETF Performance

Total Return NAV to Date (up to 30/11/2020)

 

1M

3M

6M

YTD

12M

Since Inception

Alerian Midstream Energy Dividend UCITS ETF

19.65%

4.93%

-

10.60%

-

10.60%

Alerian Midstream Energy Dividend Index (NTR)

19.36%

7.38%

2.88%

-26.81%

-20.18%

10.19%

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. Source: Alerian. Data as of 30/11/20

 

Industry News

Buybacks gain traction in midstream.

Four names in AEDW announced buyback authorizations in November, bringing the total number of constituents with buyback programs to twelve. As shown below, 50.3% of the index by weighting has buyback authorizations in place. Elevated yields and discounted equity values make buybacks an appealing option for capital allocation as companies generate free cash flow.

 

Company Name

 

Ticker

 

AEDW Weight

 

Total Authorization ($ millions)

 

Spent to Date Through 9/30 ($ millions)

 

Date Announced

Antero Midstream Corporation

AM

2.26%

300

151

12/08/2019

Energy Transfer LP

ET

10.25%

1,000

1,089

18/02/2015

EnLink Midstream LLC

ENLC

0.65%

100

--

04/11/2020

Enterprise Products Partners LP

EPD

10.15%

2,000

255

31/01/2019

Gibson Energy Inc[3]

GEI

0.52%

245

--

27/08/2020

Kinder Morgan Inc

KMI

8.45%

2,000

575

19/07/2017

Magellan Midstream Partners LP

MMP

3.25%

750

252

21/01/2020

MPLX LP

MPLX

9.86%

1,000

--

02/11/2020

NGL Energy Partners LP

NGL

0.35%

150

--

30/08/2019

Plains All American Pipeline LP[4]

PAA

2.40%

500

--

02/11/2020

Targa Resources Corp

TRGP

0.33%

500

--

04/11/2020

Western Midstream Partners LP

WES

1.86%

250

--

09/11/2020

Total

50.31%

 

Index weightings are as of /2020.

Source: Alerian, Company Reports as of 11/30/2020

 

Constituent News

Enbridge Inc. (ENB) initiated a target of net zero greenhouse gas (GHG) emissions by 2050, with a medium- term goal of lowering GHG emissions intensity by 35% before 2030.[5] Additional ESG goals included improved workforce diversity, Board diversity, and enhanced reporting around safety and reliability. Within AEDW, Williams Companies (WMB) is also targeting net zero emissions by 2050. Read more on ESG considerations for AEDW

TC Energy (TRP) held a virtual investor day this month highlighting expectations for long-term growth. Management reiterated guidance for 10% dividend growth in 2021 and dividend growth of 5-7% beyond 2021. The company continues to progress a $37 billion project portfolio that will generate fees under regulated cost structures or long-term, take-or-pay agreements.[6]

Dividend updates – The vast majority of AEDW constituents maintained their 3Q20 dividends sequentially, though Energy Transfer (ET, 10.25% weight) and NGL Energy Partners (NGL, 0.35%) announced cuts. (Weights as of 16 October 2020.) Cheniere Energy Partners (CQP, 3.19% weight), which has grown its distribution consistently this year, guided to distribution growth of 1.9% at the midpoint for 2021.[7]

 

Outlook

Looking ahead to 2021, energy, including midstream energy infrastructure, clearly stands to benefit from an improved outlook for the global economy and oil demand. Energy has been one of the sectors most negatively impacted by the pandemic, and a successful vaccine would be constructive for a recovery in oil demand next year. The strong midstream performance in November on the heels of vaccine progress exemplified the potential upside for the sector. With oil prices currently around $45 per barrel, the recovery remains in early stages with plenty of room for additional improvement in oil prices and energy equities. Furthermore, any shift from growth to value could also be broadly supportive for energy. Specific to midstream, companies are well positioned to generate meaningful free cash flow next year, with many names expected to have excess cash even after making generous dividend payments. To this end, several companies have initiated buyback programs this year, which could be an added tailwind for midstream equities in 2021. Midstream energy infrastructure is well positioned to provide attractive income to investors with the potential for total return as well.

 

Product Details

The Alerian Midstream Energy Dividend UCITS ETF (MMLP) is a UCITS compliant Exchange Traded Fund domiciled in Ireland. Due to list in July and August.

Our midstream energy ETF seeks to provide diversified exposure to energy companies involved in the processing, transportation and storage of oil, natural gas and natural gas liquids in the US and Canadian markets and includes MLPs and C-corps.

It is the first UCITS ETF to provide exposure to the energy infrastructure sector via an Alerian index. By employing a synthetic strategy, the midstream energy ETF enables efficient replication of the index.

Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.

Exchange Bloomberg Code  RIC  ISIN  SEDOL  Currency TER 

London Stock Exchange

MMLP LN

MMLP.L

IE00BKPTXQ89

BMVFZ02

USD

0.40%

London Stock Exchange

PMLP LN

PMLP.L

IE00BKPTXQ89

BL96TT7

GBP

0.40%

Borsa Italiana

MMLP IM

MMLP.MI

IE00BKPTXQ89

BMHVZQ0

EUR

0.40%

Deutsche Boerse Xetra

JMLP GY

JMLP.DE

IE00BKPTXQ89

BMHVZP9

EUR

0.40%

 

Click here to download the full Midstream Energy Monthly Report.

 

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