Midstream Energy Monthly Report | February
the end of January, the underlying index for our midstream energy ETF, AEDW, was yielding 8.98%.
announcing dividends thus far have either maintained or modestly increased
payouts adding confidence to the yield, which is more than 130 basis points
above the five-year average.
- Midstream earnings season began in mid-January and will
continue through February, with initial fourth quarter results exceeding
- In addition to a risk-off trade, regulatory headlines in the
second half of January pressured midstream, though there is no real substantial
impact to the space, creating a buying opportunity.
- In January, AEDW outperformed both the Energy Select Sector Index (IXE)
and Stoxx 600 Oil and Gas Index (SXEP).
Midstream Energy Dividend Index (AEDW)
Past performance is no guarantee
of future performance.
*12-month figures based on
31.01.20 – 31.01.21
Index yield annualizes the most recent dividend announcement for each constituent
and takes into account current index weightings.
- January: AEDW 5.73%
- WTI oil prices increased 7.58% in January.
current yield for AEDW is 8.98%*,
which is elevated relative to the five-year average of 7.62%.
What has driven this performance?
the month strong as oil prices gained on news of additional production cuts
from Saudi Arabia, and a reflation trade emerged following the Georgia run-off
results, which were perceived to pave the way for more meaningful stimulus
spending. As President Biden took office, regulatory headlines reversed the
rally and pressured energy, including midstream, despite no substantial
readthrough for midstream from policy announcements so far (read more below).
outperformed both the Energy Select Sector Index (IXE) and the Stoxx Europe 600
Oil and Gas Index (SXEP), which were up just 3.78% and 1.40%, respectively, on
a total-return basis for the month of January.
Even with sizable gains since November, AEDW was trading at 9.37x
consensus 2022 EBITDA estimates compared to a historical (ten-year) average
EV/EBITDA multiple for midstream of ~12x.
Current/past performance is no guarantee of future
*as of 31.1.21
MMLP Performance Table
As of 31.01.21
Alerian Midstream Energy Dividend UCITS ETF
Alerian Midstream Energy Dividend Index (NTR)
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 31/01/2021.
news puts undue pressure on midstream equities creating buying opportunity.
President Biden took office, regulatory concerns caused the reflation trade
that had boosted energy to temporarily reverse. The well-telegraphed
cancellation of the permit for the Keystone XL pipeline should have come as little surprise. TC Energy (TRP CN), the project owner,
suspended activity on the crude pipeline that would have carried barrels from Canada to the US but reiterated
past guidance for dividend growth, highlighting a $25 billion project backlog
even without Keystone XL. The uniqueness of the pipeline (cross border
pipelines require presidential permits), and given that midstream ownership is
limited to TC Energy, there is no real impact to the rest of midstream from the
cancelled permit for Keystone XL. Despite this, news seemed to weigh on the
midstream space, even as TRP CN shares were essentially flat for the week of
Biden also signed an executive order on 27 January pausing new leases for
drilling on federal lands and offshore waters to allow for a review of current
leasing and permitting practices. Importantly, the order
does not impact ongoing operations or permits for existing leases. Producers
stockpiled permits ahead of President Biden taking office, and some companies
have discussed having an inventory of federal permits to support more than four
years of drilling – in other words, longer than the president’s term. In fact,
the industry has 7,700 unused permits for drilling on federal lands and waters. Even if the pause on new
leases persists, there should be little medium-term impact to the industry,
including midstream companies providing pipeline services for production from
AEDWN having gained 36.45% from November 2 to January 15, the pullback of -8.03%
in the second half of the month has created a buying opportunity for those
interested in allocating to midstream but concerned that they had missed some
of the upside in shares. The regulations from the
Biden Administration should have been expected and have very little impact to
the midstream space, making the equity response feel overdone. Read More
Williams (WMB) hosted its Inaugural Virtual ESG Event to discuss the progress it has
made in its sustainability efforts since 2019. WMB, which handles 30% of US
natural gas, highlighted the long-term importance of the hydrocarbon to the
global energy transition and the emphasis the company places on safety in its
existing pipeline operations. Additionally, management reiterated its
commitment to climate consciousness, which includes a net zero emissions target
by 2050 and capitalizing
on opportunities in the renewable energy space. WMB is one of several large
energy infrastructure companies progressing with ESG initiatives. Read More
Energy (TRP) suspended
development of the Keystone XL pipeline as the Biden administration revoked the
presidential permit for the project. Importantly, TRP restated dividend growth
guidance of 8-10% for 2021 and 5-7% beyond 2021, and the company still has a
project backlog of $25 billion without Keystone XL. With TRP the sole owner of
the project within midstream and given the unique circumstances of the project,
the cancellation has no real impact to broader midstream.
2021 Investor Day highlighted the company's current positioning and stable
long-term outlook. KMI expects to generate roughly $800 million of free cash
flow after its dividend this year. KMI projects a 3% year-over-year dividend
increase and $450 million available for share buybacks in 2021. ESG was also in
focus. Natural gas is anticipated to play a significant role in the global
economy over the next several decades, but management also identified several
opportunities in renewable natural gas and hydrogen, for example, that leverage
its existing asset base.
2021, energy, including midstream energy infrastructure, clearly stands to
benefit from an improved outlook for the global economy and oil demand. Other
market undercurrents such as a rotation into value or a reflation trade driven
by inflation concerns should also be supportive for energy infrastructure.
Midstream earnings season kicked off in mid-January and will continue through
February, with initial fourth quarter results exceeding expectations. Dividend
announcements are also underway, with the AEDW constituents having announced so
far either maintaining or modestly growing their payouts. Midstream companies are poised 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. Approximately half of AEDW by weighting has buyback
authorizations in place. Midstream energy infrastructure is well positioned to
provide attractive income to investors with the potential for total return as
The Alerian Midstream Energy ETF (MMLP) is a UCITS compliant Exchange Traded Fund domiciled
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
Please remember that the
value of your investment may go down as well as up and past performance is no
indication of future performance.
Visit the MMLP Fund Page for more information.