- After
a strong November, the Alerian Midstream Energy Dividend Index (AEDW) rose 0.56%
in December on a net total return basis.
- The
current yield for the underlying index for The Alerian Midstream Energy Dividend UCITS ETF
(MMLP), our midstream energy ETF, is 9.59% or almost 200 basis points above its five-year average. As of 31
December, 83.4% of the index by weighting was investment-grade companies.
- Unlike
other energy sectors, midstream companies often provide financial guidance for
the year ahead. Midstream guidance updates thus far have largely reflected
stability, with some names expecting modest sequential growth in EBITDA in
2021.
Performance Review
- December: AEDW 0.56%
- WTI oil prices increased 7.01% in December but finished the year down 20.54%.
Yield
The current yield for
AEDW is 9.59%*, which is elevated relative to the five-year average of 7.64%.
Alerian Midstream Energy Dividend Index Performance
|
December
|
12 Month
|
|
0.56%
|
-26.40%
|
Past performance is no
guarantee of future performance.
Source: Alerian
Based on net total return.
December figures based
on 30.11.20 – 31.12.20
12-month figures based
on 31.12.19 – 31.12.20
Dividend Yield
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.
December figure based on
31.12.20
Source: Alerian
What
has driven this performance?
After a strong November, energy, including
midstream, saw more muted gains in December as investors weighed the impact of
a new COVID-19 variant and heightened lockdowns in many places.
The fee-based nature of midstream and stable
cash flows continue to differentiate midstream from the rest of energy. The AEDW
Index finished 2020 down -26.40% on a net total return basis, but 2020 and 2021 EBITDA estimates for the index have
fallen by only -10.2% and -14.3%, respectively, from January 31 (pre-COVID) to the
end of December. This disconnect between performance and the fundamental
outlook has created an opportunity for investors to reap attractive income from
quality companies trading at notable discounts to historical valuations. As of
31 December, 83.4% of AEDW was investment-grade companies by weighting, and the
index was trading at 9.1x consensus 2022 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 midstream energy ETF during December, AEDW
outperformed IXETR by over 600 basis points in 2020 on a total-return basis.
Current/past performance is no
guarantee of future performance
*as of 31.12.20
Source of all data: Alerian,
Bloomberg
Alerian Midstream Energy
Dividend Index (NTR) and Midstream ETF Performance
Total Return NAV to Date (up to 31/12/2020)
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
Since Inception
|
|
Alerian Midstream Energy Dividend UCITS ETF
|
-1.08%
|
20.13%
|
-
|
9.43%
|
-
|
9.43%
|
|
Alerian Midstream Energy Dividend Index (NTR)
|
0.56%
|
21.60%
|
9.16%
|
-26.40%
|
-26.40%
|
10.81%
|
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 31/12/20
Industry News
2021 guidance updates
reflect stability
Into year-end 2020, several
midstream companies provided financial guidance for 2021. Unlike other sectors
of energy, midstream companies are often able to provide EBITDA guidance for
the year ahead given the fee-based nature of cash flows and contract protections
such as minimum volume commitments. As discussed in more detail below, guidance
updates have reflected the stability of these underlying businesses, with a
couple names projecting modest sequential EBITDA growth in 2021.
Free cash flow remains in
focus
The energy sector broadly is
pursuing free cash flow to attract generalist investors and in response to
investor desires to see debt reduced and more cash returned to shareholders.
Within the energy space, midstream is better positioned to generate free cash
flow independent of the commodity price environment due to the fee-based nature
of these businesses (read more).
Steady cash flows and significant reductions to growth capital spending plans
for most midstream names are laying the groundwork for meaningful free cash
flow generation in 2021. While some companies will use excess cash to reduce
debt, others have announced buyback authorizations to return cash to
shareholders. Based on weightings from the October reconstitution, over 50% of
the AEDW Index by weighting have buyback authorizations in place. Discounted
valuations, free cash flow expectations, and the potential for buybacks make
for a compelling total return opportunity complemented by the generous income
on offer.
Outlook
Entering 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. The widespread deployment
of vaccines would be constructive for a recovery in oil demand. While
distribution of vaccines to the general public will take time, stocks will
likely trade in anticipation of this trend just as the space rallied on vaccine
development news in November, which exemplified the potential upside for the
sector. With West Texas Intermediate oil prices currently around $48 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
in 2021, with many names expected to have excess cash even after making
generous dividend payments. To this end, several companies initiated buyback
programs in 2020, 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.
Constituent News
Enbridge Inc. (ENB CN)
announced 2021 EBITDA guidance of $14.1 billion at the midpoint, which is up roughly
3% from 2020 expected EBITDA of slightly less than $13.7 billion. ENB also
announced a 2021 dividend increase of 3.1%.[1]
Kinder Morgan (KMI)
announced 2021 financial guidance and expectations for the 2021 dividend. KMI
expects the annualized 2021 dividend to be $1.08 per share, representing a 3%
increase from 2020, and KMI noted the potential for opportunistic share
buybacks of up to $450 million in 2021. Adjusted EBITDA guidance for 2021 of
$6.8 billion represents a modest decline from 2020 guidance of less than 3%.
The 2021 capital budget of $800 million is down just over 50% from 2020
spending guidance.[2]
Pembina Pipeline (PPL CN) provided
several updates in mid-December. The company announced plans to pursue a
buyback authorization for up to 5% of its shares outstanding. PPL guided to
2021 EBITDA of $3.3 billion at the midpoint, which represents a 2% increase
from EBITDA guidance for 2020. The company announced a 2021 capital budget of
$785 million, which is expected to be fully covered by operating cash flow
after dividends if the company achieves the bottom of its guidance range.[3]
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.
The
fund 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%
|